Political funding in the United Kingdom has been a source of controversy for many years. There are three main ways a political party is funded. The first is through membership fees; the second is through donations; and the third is through state funding (though only for administrative costs). The general restrictions in the UK were held in Bowman v United Kingdom to be fully compatible with the European Convention on Human Rights, article 10.
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History
When the UK passed the Corrupt and Illegal Practices (Prevention) Act in 1883 this was the first effort ever to regulate the financial dimension of political competition. Although this landmark legislation was concerned with constituency candidates, their campaign expenses and their agents only, all other efforts to create a political finance regime started from here.
The next legislative step to deal with the subject was the Honours (Prevention of Abuses) Act 1925 that sought to end the selling of titles in exchange for donations to political parties.
In August 1976 the Committee on Financial Aid to Political Parties, chaired by Lord Houghton of Sowerby, proposed that financial aid to political parties should be given in two forms: (a) general grants to the central organisations for their general purposes and (b) a limited reimbursement of election expenses to parliamentary and local government candidates.
Starting in 2006, political funding came under scrutiny as concerns grew that the largest British political parties were too dependent on a handful of wealthy donors. Furthermore, during the Cash for Honours scandal, concern grew even more. A concern of the 1970s had been that the major parties were unable to raise sufficient funds to operate successfully.
The Political Parties, Elections and Referendums Act 2000
The Political Parties, Elections and Referendums Act 2000 (PPERA) was an act that established the Electoral Commission and required all political parties to register with it, set down accounting requirements for political parties, and introduced controls on donations.
2006 Sir Hayden Phillips inquiry
In March 2006, former civil servant Sir Hayden Phillips was charged with setting up an inquiry to come up with proposal for reform. It reported a year later. He recommended capping individual donations at £50,000 and capping spending for political campaigns. He also suggested increasing state funding by £25m and expanding its reach.
2008 Ministry of Justice report
In June 2008, the Ministry of Justice released a white paper analyzing party finance and expenditure. The paper proposed to tighten controls on spending by parties and candidates, substantially strengthen the powers of the Electoral Commission, and increase the transparency of donations.
2011 Committee on Standards in Public Life report
In November 2011 the Committee on Standards on Public Life, chaired by Sir Christopher Kelly, published a Report on "Political Party Finance. Ending the big donor culture". It is their 13th report, Cm. 8208. The report made five main recommendations: (a) Contribution limit of GBP10,000 per donor, party and year; (b) this limit should not apply to affiliated trade union affiliation fees if such fees are raised by an "opt in"; (c) existing limits for campaign spending should be cut by about 15 per cent; (d) in addition to the present "policy development grant" eligible parties should be granted public funding at the rate of GBP3.00 per vote in Westminster elections and GBP 1.50 per vote in devolved and European elections; (e) income tax relief should be available for donations up to GBP 1,000 and membership fees to political parties.
Membership subscriptions
Membership subscriptions ("subs") provide one source of funding for political parties. However, in recent times membership has declined and campaign costs have grown.
The Green Party is the only major political party in the UK which receives the majority of its funding through membership fees and these are what cover the running costs of the organisation.
Donations
The Conservative Party relies on donations mostly from individuals and companies; as well as these sources the Labour Party receives a significant portion of its donations from trade unions. For example, in the third quarter of 2009, eighteen political parties reported donations totalling £9,532,598 (excluding public funds). The Conservative Party received £5,269,186, the Labour party received £3,045,377 and the Liberal Democrats received £816,663. Donations typically peak before elections. Between the 6th of April and the 6th of May 2010 (a general election campaign month) the Conservatives took £7,317,602, Labour £5,283,199 and the Liberal Democrats £724,000.
State funding
Opposition parties receive state funding to pay administration cost; Short Money in the House of Commons starting in 1975, and Cranborne Money in the House of Lords starting in 1996.
In addition there is a general policy development grant available to parties with two MPs or one MP and one MEP.
Transparency
Donations worth over £7,500 to national parties must be declared, as must be donations worth £1,500 or more to local associations. Donations to members' associations – groups whose members are primarily or entirely members of a single political party – also need to be declared above £7,500. This produces a loophole where donors can donate larger sums to local candidates while remaining anonymous, by channeling those donations through a members' association such as the United and Cecil Club.
For a while as a loophole, loans did not have to be declared.