Money and politics

The ever-thorny issue of political party funding has reared its head again this week and clients of Cratus have been asking what is happening and what the implications might be. 

This week’s debate surrounds the government’s proposals in the Representation of the People Bill which have been hastened by the news at the start of the week that Reform UK have received two individual donations of £36m each. These donations easily outstrip the previous individual record donations. The government had already been drawing up changes to the rules over donations but seeing their current principle rival receive such a financial boost will have sharpened minds in Labour HQ. 

It is far from a new debate. The arguments have been raging for decades in every multi-party democracy. Ultimately the dilemma about how to fund political parties is all about trust, influence, and fairness in politics. Parties rely on money to function, campaign, and develop policy. But the question is whether today’s rules still protect democracy when a handful of donors can shape the funding landscape for the country’s leading lawmakers and policy setters. It is less about whether money should be allowed and more about where it comes from, how it is regulated, and how it is perceived. 

From the Labour Party’s side, their proposals which are contained in the wide ranging Representation of the People Bill are aiming to tighten controls on donors. They include heavier due diligence requirements for the political parties, tougher rules on company donations to prove a real UK connection, transparency requirements for candidates, and caps on donations from people living abroad or newly returned to the UK. Most controversially ministers have been exploring the possibility of backdating the changes which if successful could prevent the two £36m donations being kept by Reform UK. 

Reform UK has of course pushed back saying the money is legal and comes with no promise of reward. They appear to be correct about the current legality and in fairness to them and the donors, it tends to be the case that donations are made in good faith – not to secure favours. Other critics of the government have pointed out that the Labour Party is far less concerned about the large donations that they receive from the trades unions. A point that they have so far managed to avoid addressing. 

The broader debate is not about whether parties should be funded, but how to ensure that funding supports open, competitive politics rather than undermining it. Interested observers and participants should treat this as a moment to look beyond partisan advantage and focus on the principles: transparency, accountability, and a level playing field. 

Interestingly there is little mention of state funding for political parties in the current debate although there are plenty who are in favour of the idea. It is a model that is used in full or in part in around 70% of democracies with countries like Canada and Germany providing substantial financial support to political parties to avoid private funding. 

Supporters argue it could reduce reliance on a small number of wealthy donors, lower the risk of undue influence, and give parties a more predictable base to plan policy work and campaigns. It can also make the system feel more even, especially for newer parties that don’t have established donor networks. 

There are plenty of opponents to that view who would correctly say that public money for parties is unpopular with voters, and that it might weaken incentives to build grassroots support. There’s also concern it could entrench existing parties if funding formulas favour those already in Parliament, and that “voluntarism,” the principle that citizens freely choose whether and how to donate, is healthier for democracy than state support. 

There’s also a practical argument you’ll hear from many politicians: fundraising takes a huge amount of time. They’ll say hours spent courting donors, attending fundraising events, and managing compliance paperwork are hours not spent developing policy, meeting constituents, or scrutinising government. 

That doesn’t mean public funding would automatically fix everything, but it captures the trade-off: a system built heavily on private fundraising can distort how politicians use their time, even when nothing improper is happening. 

Any shift toward state funding would change incentives for political parties. Parties might spend more time meeting regulatory and reporting standards and less time on fundraising. Crucially, the political argument about fairness and influence would not disappear, it would just move to a different stage. 

Over the next few weeks we’ll see how this debate plays out and how far Labour are able to use their large Parliamentary majority and the new Prime Minister’s well of goodwill to reshape the rules around party funding. However it goes, it will have big influence for engagement with politicians in the future.