Conclusion: So What's the Problem?
increased cost of campaigning has had a significant dual impact
on the political parties. First, the Electoral Commission review
of the impact of the PPERA legislation on party funding in the
UK identified that "it is clear from these accounts that
the main parties are having difficulties meeting their day-to-day
costs, let alone campaigning costs, with some relying heavily
on borrowing to fund their operations".
This was graphically illustrated by the party accounts. In 2004,
the Labour Party ran a deficit of £2.8 million in 2004, the
Conservatives a deficit of £6.2 million and the Liberal Democrats
a surplus of £0.445 million.
In 2005, a general election year, the Labour party ran a deficit
of £14.5 million, the Conservatives of £14.9 million
and the Liberal Democrats £0.207 million.
While PPERA introduced a cap on election spending, the legislation
did nothing to address the financial burden that the political
parties face between elections; that of maintaining and operating
large organisations which deliver public goods.
46. Second, Ghaleigh claimed that this "unseemly
dash for cash followed by the regular campaigning binges",
which characterised the increase cost in campaign spending, "created
the impression (however inaccurate) of parties and governments
being in hock to their wealthy benefactors (whether trade unions
or off-shore potentates)".
The requirement under the Political Parties, Elections and Referendums
Act 2000 (PPERA) to publish all significant donations seeks to
prevent corruption by requiring transparency. Furthermore, the
amendment to the law in the Electoral Administration Act 2006,
which brought the requirement to declare loans into line with
the requirement to declare gifts, significantly strengthens the
protection afforded by the law.
However, this legislation has not dispelled the public's perception
of "sleaze" or restored faith in the political system.
Furthermore, the financial position of political parties is still
very far from transparent. It is still impossible accurately to
gauge party income or the level of support in cash or other benefits
given to political parties from particular sources. This can only
contribute to public dissatisfaction with the current system of
the funding of political parties.
47. The current situation has a considerable negative
impact on public opinion with regard to politicians and political
parties more broadly. In seeking to tackle the issue, the Lord
Chancellor acknowledged that party funding was only one issue
that had an impact on public confidence and public confidence
would not be wholly restored "just by sorting out party funding".
However, he told the Committee "one of the critical issues
is what is the best source of funding for political parties in
a way which most enhances public confidence".
Sir Hayden Phillips concurred and stated that "any changed
system of party funding should try to bolster public confidence
and help recapture the true mission of party politics as serving
48. The current system of party financing in the
UK is unstable and, unless key issues are addressed, it is likely
that these problems will increase further. Not addressing the
financial predicament of the parties at this stage could lead
to increased dependency on large donations, ever increasing amounts
of money being spent between elections and the subsequent further
erosion of public confidence due to the increasing appearance
of money buying power and influence.
49. We believe that there are problems, both actual
and perceived, with the current arrangements for party funding
in the UK. While parties struggle with escalating costs and a
reduction in the traditional financial support base, public confidence
is damaged by the fear that donors may be able to buy political
influence. While the PPERA 2000 introduced closer regulation and
some improved transparency, it has not finally resolved problems
with the system; if anything, increased transparency, by revealing
the extent of and dependency on donations from a few rich individuals,
corporations and trade unions, has increased the negative impact
on public confidence.
50. We agree with the Lord Chancellor that party
funding is only one issue that has an impact on public confidence
and resolving this issue alone will not fully restore this confidence.
However, if handled well, the process could contribute to the
restoration of public confidence. If handled poorly, regardless
of the merits of any proposals for reform, public confidence and
engagement will be further undermined.