Call the Tories' bluff and introduce state funding of political parties

Today will see a now quarterly ritual that goes to the heart of the Labour Party's standard argument that it has been unfairly treated over party funding: the regular returns of donations to political party funds that the Electoral Commission will publish today will naturally be examined carefully for any potential embarrassments. But whether or not there are any, Labour, as the governing party, feels aggrieved. Did it not introduce the very transparency that today's publication reflects? Was not this in complete contrast to its Tory predecessors, who voluntarily disclosed none of their donors, foreign and home-grown?

The answer to these questions is an unequivocal yes. But that doesn't alter the fact that the current system, is already obsolete, for several reasons. The first is the fallacy at the heart of the transparency defence. Of course, it's better that the public knows which rich men and women have made donations. It makes it easier to investigate whether they are being used to buy influence. It may inhibit or even prevent governments from being so influenced. It may even be that, in most of the cases that have caused the Government so much grief, the donations bought access but no change in public policy.

But transparency doesn't of itself prevent the exercise of improper influence. Maybe it was just a coincidence that Richard Desmond got the green light to purchase the Daily Express around the time he made his £100,000 donation to party funds. But the mere fact that his name was published as a donor doesn't make it impossible that it was no such thing.

It's now pretty clear that during the Thatcher years Nigel Lawson was prevented by No 10 from imposing a much heavier UK tax burden on non-domicile businessmen, because it would have dried up the – at the time secret – funds from donors such as the Greek shipping millionaire John Latsis. Now it doesn't follow that the reason Labour hasn't yet done what Lord Lawson tried to do is that it has a non-domiciled donor such as Lakshmi Mittal. There are other arguments, particularly for Labour governments, which are always more vulnerable on tax than Tory ones, not to do so, for example because it would reduce London's importance as a finance and business centre. But again, though it probably isn't a factor, the fact that Mr Mittal's donation is known doesn't mean that it can simply be ruled out as one.

Which brings us to the more political and practical reasons for the obsolescence of the present system. The first is that even if the Government's record on separating private donations from public policy has been immaculate, the adverse publicity has been a headache, to put it at its mildest. As it happens, this problem isn't at its peak just now. Party funding hasn't been that big a story for some time. But another political problem is worrying the Labour Party more, which is that it is in the red, to the tune of around £6m. Almost certainly related to that is the problem, given all the publicity, of attracting the rich donors Labour used to want. It's some time since the large corporates, like, say, BP, decided to stop political donations altogether. And the consequence of the adverse publicity is that the donors that are left behind by this retreat are correspondingly more likely to be the sort of people who think they can get something out of it – generating more bad publicity. Or in the case of Labour, they are trade unions.

Which brings us to a paradox. When Tony Blair went out of his way to attract businessmen as donors, he wasn't seeking to run a corrupt government. He did it partly to dramatise the fact that Labour no longer represented a single class or interest, and secondly because he wanted the party to be less dependent on the unions. Now it is beginning to look as though unless he reverses his resistance to state funding, the party, in ways distinctly alien to New Labour, is going to end up just as overdependent on the unions.

And this at time when a new breed of union leaders increasingly believe that their funding of the party entitles them to a say on policy. Maybe Bob Crow, of the RMT, was not wholly typical in tying union backing to pursuit of his union's policies. But the decision to resign from the union, first by John Prescott, and then by Robin Cook and the MP Hugh Bayley, was a heroic, and in no way anti-union, affirmation that the party was not there to be blackmailed by any vested interest using its influence within the party. For Mr Prescott, a union man to his fingertips, this was in particular a huge act, on a par with Edmund Burke's famous affirmation of allegiance to his Bristol constituents. It may be no co-incidence that both Mr Prescott and Mr Cook are supporters of state funding.

So too are most of the Cabinet. In public, Mr Blair's problem, restated to me at his last press conference, is that to make the change requires cross-party consensus. I have never quite seen why this applies any more to party funding than any other issue. But in any case, the lack of consensus is not quite all that it seems. The new Tory chairman, Theresa May, has said that the party remains opposed to state funding. But she also stated the obvious on the BBC's Westminster Hour on Sunday night – that her party would take the money if state funding was "imposed". This makes it a lot more difficult to mount credible opposition to the change – a point seized on by Peter Mandelson (who is a much warmer supporter of state funding than Mr Blair is in public, but may not be so far from his thinking in private) in an interview on the same programme.

For the Tories, there are also pressing reasons to have state funding. In government it would face the same problems as Labour – without the unions to prop them up. In opposition they are woefully dependent on a handful of rich men, whether Lord Ashcroft, the betting magnate Stuart Wheeler or Sir Paul Getty, all of whom, however personally disinterested, could exercise an influence on policy or leadership questions if they chose to do so. Finally, it was a Tory MP, Andrew Tyrie, who pointed out that state funding already plays a crucial role in party politics – to the tune of £28m in a non-election year and £111m in an election year.

Which is the killer point – that state funding matched to what the parties can raise from members, with caps on individual donations, would be a (very modest) change of degree and not of kind. Oh, the critics say, the taxpayer will not want to fork out for all those tendentious ads. Well, the simple answer to that is to have fewer and less tendentious ads. Taxpayer ownership of the political process would raise its game.

The Electoral Commission will not complete a review of party funding before 2004. That means the Labour Party could put state funding in its next manifesto. But there is a strong case for Mr Blair to call the Tories' bluff and legislate before then. What would be crazy would be for Labour to give the Tories a tactical veto. Particularly when the alternative is more dependence on the whim of unions.

d.macintyre@independent.co.uk