State funding for parties is a red herring

No one really knows how far the various goings-on of Mr Jonathan Aitken, Mr Neil Hamilton and others helped Labour win so handsomely in 1997. At the time it was assumed they were quite important. How is it, then, that the affair of Mr Lakshmi Mittal has, according to the polls, had so little effect on the reputation of Mr Tony Blair? If anything, indeed, his popularity has increased.

It seems to be a case of: "Politicians are all the same." They were probably saying it during the Wars of the Roses: "Lancaster, York, what's the difference? They're both in it for what they can get out of it." Five centuries on, Labour's cry is that our sleaze is cleaner than your sleaze. For the moment, it seems to be effective.

But Mr Blair is clearly worried all the same. Why otherwise should he and his understrappers, such as the "party chairman" Mr Charles Clarke, raise once again the question of state funding of political parties? It is the reddest of herrings. I place Mr Clarke's title in inverted commas, by the way, because when he was appointed the party already had a perfectly good chairman of its own in the person of the blameless trade unionist Ms Maggie Jones, now succeeded by Ms Margaret Wall.

As Mr Clarke was appointed to an unnecessary job, so likewise would any inquiry into state funding of parties replicate work that was done by committees and ministers as recently as two years ago. I refer to Lord Neill's 1998 report on the funding of political parties; the consequential White Paper; and the Political Parties, Elections and Referendums Act 2000.

Moreover, Lord Neill's was only the most recent of numerous investigations into state funding carried out over the last 26 years. In 1976 the Houghton committee recommended such help. There was, however, a powerful minority report, one of whose signatories was my old friend Ian Aitken of The Guardian. Afterwards one of his fellow members, a Labour life peer who had supported the majority, said to him: "You [expletive]. You were put on to that committee for one purpose and one purpose only." However, the plot failed because of the economic crisis, and the minority triumphed.

In 1982 the Hansard Society recommended state aid on the basis that, for each £2 donated, the taxpayer would provide another £2. But a £2 state contribution would be the maximum. In 1985 the Constitutional Reform Centre and the Hansard Society together recommended that company donations should have to be approved by the shareholders – a reform that reappears in the 2000 Act. In 1992 the Hansard Society was divided. In 1994 a Commons committee was also split, the Labour members favouring state aid, the Conservatives against.

In 1998 the Neill committee came down against state aid. However, it suggested tax relief for personal donations, which the government rejected. It also suggested a total of £2m in "policy development grants" to the parties, which the Government accepted and incorporated in the new Act. The committee was against any other form of state aid, other than the traditional free postage and schoolrooms, the almost equally hallowed election broadcasts and the more recent "Short money".

The name derives from Edward Short, the former Labour Leader of the House who now sits in the upper House as Lord Glenamara of Glenridding, which sounds like a fine old malt whisky. In 1974, just before the Easter recess, when no one was looking, he pushed through the aid to opposition parties. In 1997 Labour received £1.53m, the Liberal Democrats £0.32m; by 2000 the Conservatives were receiving £3.38m, the Liberal Democrats £1.09m.

The Government's White Paper accepted the Neill view that there should be no additional state aid of any kind. Introducing the second reading of what became the 2000 Act, Mr Jack Straw, the then Home Secretary, was positively eloquent in his opposition to aid:

"Rather than underpinning representative democracy, over-reliance on state funding could in the end undermine it. Political parties should be the champions of the people, ensuring that the state is their servant and not their master. An over-reliance on state funding could absorb parties into the fabric of the state, thereby putting their own institutional needs and those of the state above the needs of those whom they are elected to represent. The health of our democracy is far better served if parties are principally reliant on their own efforts to secure adequate funding. Such an approach compels parties to engage with their members and supporters."

Not only did Mr Blair decide unequivocally against state aid two years ago. More: the Act which he sponsored and is still part of the law was intended specifically to deal with the embarrassments illustrated by the Mittal affair. Indeed, on 12 November 1997 he had gone to the trouble of extending the terms of reference of the Neill inquiry. It was also, he instructed, "to review issues in relation to the funding of political parties, and to make recommendations as to any changes in present arrangements".

These recommendations were for the declaration of all donations of over £5,000; a prohibition against foreign donations; and a restriction of election expenditure to £20m for each party. The last provision, it was devoutly hoped, would lessen the need for dodgy donations. The recommendations were accepted by the Government and embodied in a massive Act. A foreign donation was defined negatively.

An individual donor is above board if he or she appears on the electoral register. A corporate donor is in the same happy position if the company concerned is, first, registered in the United Kingdom and, second, both incorporated within the UK or the European Union and carrying on business in the UK.

Obviously Mr Mittal's companies fall outside the Act whichever way you slice them. They are clearly foreign companies, prohibited from making donations to any political party. It required only a certain amount of diligence, combined with the ability to read, for the No 10 officials to establish this; only a degree of honesty for them to admit it. They lacked either industry or candour – perhaps both. If, however, Mr Mittal made his gift as an individual, as it appears he did, he was saved by his commodious residence in leafy north London.

Whether the People's Party should have accepted his £125,000 at all is another matter. He certainly seems to have obtained good value for money. What Mr Blair and his acolytes cannot now do is turn around and try to divert the row into a discussion of aid to the parties.