How to fund a political party

I note that there has been a certain amount of discussion on this subject of late, in the light of revelations about Labour being funded by some decidedly dodgy-looking loans.

Political party funding has always been a controversial subject; this isn't new, and election campaigns have always been expensive exercises. I'm not going to write an essay on the history of electoral campaigning and the funding thereof, but suffice it to say that money has always been spent in quantity on elections, and that the concept of funding parties through membership subscriptions and jumble sales was never anything to do with the real world.

So where have parties got money from in the past? Mostly, rich individuals with something to gain - either personally wealthy candidates, or donors who got honours, or government contracts. Remember that Lloyd George, as well as selling peerages, funded himself through contract bribes and insider trading. Occasionally, funds have come more openly from businesses, from trades unions, and even occasionally from a mass membership. But the last is very rare indeed - few political parties have enough members to make any impact.

The proposal that is widely bandied about is state funding. Of course, we already have state funding of political parties, in the form of Short and Cranbourne money, as funding for group officers and political assistants on local councils, in the office costs allowance for elected parliamentarians, and in policy development funds. But most of that money comes with strings attached - the one major string in most cases is that it can't be spent on campaigning.

But there are major objections to state funding of political parties.

First, it's clearly unfair for all parties to be funded the same, as tiny minority parties would then get loadsamoney. Other allocation schemes proposed are either mechanical based on votes cast - which will trail public opinion, probably quite badly (imagine how much money the Tories would have been getting in 1996, based on the 1992 General Election, but when they were about to lose in a landslide), or are going to involve subjective measures, or opinion polls. Any measure that takes into account numbers of elected representatives faces both the distortion of the FPTP electoral system and the further distortion of the huge variations in council seat sizes from one council to the next. Coming up with a scheme for allocation that is widely regarded as fair is going to be challenging to say the least.

Second, many people will object to their taxes being put to this use. Hostility to politicians isn't new - That Was The Week That Was is 43 years ago, and the sentiment is older than that - but it is relatively strong at the moment, and many people's antipathy is going to make them very annoyed to see some of their taxes going into political parties' coffers. Some extreme parties are going to provoke even more radical reactions. It's traditional to mention the BNP at this point, but it's not hard to devise schemes to avoid giving significant money to a party with negligible elected representation. But in Northern Ireland that just doesn't apply - Sinn Fein will inevitably gain a great deal of funding, as will the DUP. And there are very few people who will be comfortable with their taxes going to both Ian Paisley and Gerry Adams.

Parties just having less money simply isn't a credible option - they will just come up with "soft money" deals like in the USA, where an arms-length body gets the money. Soft money also creates a problem in that it - by definition - doesn't go into the official structures of the party, which means that it increases the power that a clique of power-brokers have and weakens that mass membership's power.

My solution is this:

When people pay their income tax (ie on their P60 at the end of each year, if they pay by PAYE, or on their tax return if they have one) taxpayers can choose an accounting unit of any registered political party to receive an amount equivalent to 0.1% of the taxpayer's taxable income. If they don't choose to direct money to a political party, then the money goes into the General Fund, the same as the rest of their tax.

A 0.1p income tax should raise about £350m, but I expect a majority of the population to decline to hand the money over to any party, so I reckon we're looking at about £30m per party per year, which is a serious amount of money in party terms, and would mean that regulations to stop parties getting vast wodges of dosh from individual donors would have a chance of being effectively enforced.

The benefits I see:

• No-one is compelled to contribute
• No-one can see their money given to a cause they oppose
• Money goes to party directly, to appear in public accounts and where the party's internal democracy can determine what happens to it.
• Putting the money in the hands of accounting units means that people can make their donation to a local party body - a constituency, or a local council, or a region, or whatever, instead of all money going to the centre. This should prevent the centralising effect that you would expect from more conventional state funding.

Some necessary tweaks (the small print, if you like): Taxpayers would be entitled to either appear on a list of donors that the accounting unit recieves along with its cash, or not. The amount they donated would not be revealed. The total number donating to each accounting unit would be public, as would the amount donated. Obviously, parties could have internal transfer processes to move money into poorer areas, or not.