The Big Question: Does politics need party funding reform, and if so, should voters pay?

(Independent Graphics)

Why are we asking this now?

George Osborne, the Shadow Chancellor and one of the three or four most influential Conservative politicians, is in trouble. Allegations that during one of his meetings with the Russian oligarch, Oleg Deripaska, someone discussed the possibility of a £50,000 donation to Tory coffers, which could be channelled through the British company, Leyland Daf, owned by Deripaska. It is not disputed that a donation was discussed at some point, although Mr Osborne is emphatic that he never asked for money, and no donation was ever accepted. Yesterday, Gordon Brown called for an investigation.

What is wrong with taking money from a Russian oligarch?

The Political Parties Elections and Referendums Act 2000 makes it illegal for any political party to accept a donation of more than £200 from anyone who is not a "permissible donor". Permissible donors are British citizens and companies, trade unions and other organisations based in the UK. You do not have to be the party treasurer or the person who physically handles a donation to run foul of the law.

Section 61 of the Act says it is an offence for "any person to knowingly enter into any act in furtherance of any arrangement to facilitate the making of donations otherwise than by a permissible donor". Trying to disguise an illegal donation by channelling it through a British source is also illegal. It is now written into British law that the public has a right to know the source of any large political donation.

But didn't Labour take a secret donation from Bernie Ecclestone?

The banning of secret donations and foreign donations is a relatively recent development, and until about a decade ago, it was also unusual for very rich people to give to the Labour Party. Labour relied on big donations from the main trade unions and on a large number of small, individual contributions. Since the unions could not give away their members' money in secret, the Labour Party's finances were mostly open to public view. That changed when Tony Blair became leader of the Labour Party and attracted financial support from the very rich, including the head of Formula One, Bernie Ecclestone.

Labour Party managers did not declare large, individual donations because there was no law saying they had to. When news of the Ecclestone donation leaked out, after the Labour Government agreed that Formula One should be exempt from European Union legislation banning tobacco sponsorship of sport, the scandal was so embarrassing that the Government decided to rewrite the law.

Why ban donations from foreign nationals?

The ban on donations is not uniquely British – the same rule applies in US electoral law, for example. It is a reasonable question to ask why someone who is not British and does not have a vote in Britain should want to spend a large amount of money trying to influence the outcome of a British election. In 1999, when ministers were drawing up the current legislation, the Government wanted to take revenge on the Tories for making capital out of the Ecclestone affair. The Conservatives were struggling for money then, but one very generous donor was the party treasurer, Michael Ashcroft, who was domiciled in Belize, so the Government sought to make it a rule that you had to live in the UK to be a permissible donor. To the disgust of many Labour MPs, the law as eventually drafted went along with recommendations from the independent Committee on Standards in Public Life, and permits donations from British citizens living abroad.

Did political parties ever accept donations from abroad?

Yes, there have been an unknown number of rich non-Britons prepared to give to British political parties. The Conservatives seem to have been the main beneficiaries. For as long as they were in government, they insisted that anyone should be allowed to give as much of their own money as they liked to any party, without suffering the embarrassment of being publicly identified. Consequently, no one ever knew where a large portion of the Tories' money came from, although they always had far more than any other party. Occasionally, information did trickle out. The party accepted £440,000 from Asil Nadir, who later fled to Turkish Cyprus to avoid extradition when his business empire collapsed in 1990, and is still there. In 1991, it received £2m from a Greek ship owner, John Latsis. In 1996, shortly after the Government decided not to send troops to Bosnia to protect its Muslim population from ethnic cleansing, the Tories allegedly received £18,000 from associates of the Serb ruler Slobodan Milosevic.

Since the law has been tightened, does that not solve the problem?

Perversely, by trying to clean up political funding and so restore trust in politicians, legislators have drawn more and more attention to what is going on, inflaming public suspicion, and creating whole new problems. John Major started the process by setting up the Committee on Standards in Public Life in 1994, which did not save his government from being beset with sleaze allegations. Labour's last big funding scandal occurred last year, when the Newcastle property developer David Abrahams tried to use other people's names to conceal the fact he had donated more than £500,000 to Labour. In the old days, he could simply have handed over the cash in secret. Even when donations are made legally, as when unions give to Labour for instance, there are questions to be asked about what, if anything, they expect in return.

Why do political parties not get state funds?

Actually, parties are subsidised by the state in various ways. During the elections, they have their literature delivered door to door by the Royal Mail for nothing, and get free airtime in the form of party political broadcasts. There is also the so-called "Short money", named after a former Commons leader, Ted Short, who agreed in 1975 that opposition parties should receive a subsidy in proportion to the number of votes they receive at an election, to help them carry out their parliamentary functions effectively. Last year, the Conservatives received more than £4.5m. The governing party receives no Short money, but senior ministers have political advisers paid at public expense, which is another form of subsidy.

Should the taxpayer pay more?

There are people who think political parties should be funded entirely by the state. This would eliminate the risk of anyone buying political influence through donations to party funds, and the inbuilt disadvantages suffered by parties that do not appeal to the very rich. But it would be a rigid system that favoured parties that have been popular in the past over those that are gaining popularity. If state funding applied now, the main beneficiary would be the Labour Party, because it won the 2005 election. The other very big objection is public opinion. People do not want their taxes used to subsidise the activities of political parties.

Should Britain's political parties receive state funding?

Yes...

* The state funding of political parties would eliminate the risks of anyone buying political influence

* It would address the funding gap often encountered by parties who do not propose policies to help the rich

* Parties already get state funding through Short money, and the electorate does not object

No...

* People don't want to subsidise political parties. Their taxes can be better spent elsewhere

* State funding can make it more difficult for small and new parties to break into politics as they may not receive subsidies

* State funding is unresponsive, paying most to the party with the most seats in Parliament and in power