The Review of Party Funding headed by former civil-servant Sir Hayden Phillips was set up by the government in the wake of the 'loans for robes' affair, with the aim of making recommendations on the reform of the funding of political parties.
The main parties are in fact already substantially funded by public money - which has not stopped them blatantly selling peerages to supplement their ever burgeoning election spending.
The Review was originally touted as an independent examination of the party funding issue. However, it soon became apparent that Hayden Phillips would be not so much looking into the core issue of whether even more state funding would be appropriate, than trying to cajole the two main main parties into agreeing on the exact nature of a new system of increased state-funding.
The Review reported on March 15th - some three months late - and to no-one's surprise Hayden Phillips did recommend a substantial increase in state-funding, alongside tighter limits on election spending, though the report is light on specifics.
The report also states that the main parties have not been able to agree on the two major issues of a cap on donations and election spending limits. This does somewhat give the game away: namely that the Review is little more than an attempt to stitch together the highest common factor of agreement between the main parties, rather than a real attempt not to clean the system up.
Behind all of this is a change in Conservative and Labour policy - both of the main parties, without any formal announcement, used the loans for robes affair quietly to join the Lib Dems in support of more state funding.
However, most of the evidence is that much of any futher increase in public funding will be spent on expanding party bureaucracies, funding general-election billboard advertising, littering the nation's doorsteps - and inboxes - with mailings and paying expensive political consultants.
At the last general election, two-thirds of the two main parties' £36m campaign war-chest was spent on these areas. The Conservatives blew nearly £450,000 on just one political consultant.
One of politics' best kept secrets is that Labour, the Conservatives, Lib Dems and other parties already get between £19.32m and just under £50m each year to fund their operations (see the Existing Public Funding section for more details).
This existing state funding has also increased by a massive 430% since 1997 (excluding party broadcasts and free election mailings) - and there is clear evidence that MPs supplement this through their allowances which have increased substantially and are now set to go up, once more, way in excess of inflation.
The revelation late in 2006 that the three main parties had borrowed £60m from wealthy backers has further aroused suspicions that the politicians will use any additional state funding to bail themselves out.
There are arguments that some state funding is genuinely necessary for the running of government and opposition. But the issue of party funding in general swirls around a murky nexus, encompassing the failure of House of Lords reform, the activities of government special advisers, press officers and public affairs consultants, the professionalisation of politics and the rise of a political class - the 'politocracy'. In other words, the subject is inextricably connected with many of the problems with our democracy.
NoPublicFunding.org.uk presents all of the background and arguments. Just scroll down or click on the buttons to the left for all the information you need.
You can also register your vote for or against on this site - and when the proposals are published, you'll also be able to see whether your MP is pro or anti taking more of your money.
The Review
The Review of the Funding of Political Parties was set up by the government under the former civil-servant, Sir Hayden Phillips, to look at party funding in the wake of the 'loans for robes' affair. The Review produced an interim report and was scheduled to report in December - this was delayed several times and eventually reported in mid-March 2007.
The Review was given minimal publicity. The government spent £154 million on advertising in the 2005/6 year - that's more than Tesco and Sainsbury's combined. In fact, the government's advertising bill has increased by more than 400% in nine years. Yet they chose to spend not a penny on advertising the review to invite comment from the general public.
Instead they relied on limited PR and a consultation exercise which was heavily skewed to the political parties and activists who might have an interest in more public funding.
The Review worked closely with The New Politics Network, a think tank whose reports have been highly supportive of increasing public funding through tax relief for donations. NPN's consultation exercise mainly involved a questionnaire sent to the individual constituency organisations of the three main parties along with some of the minor ones. They also ran consultation exercises at the main party conferences.
No surprise that the results of consulting what the NPN term "stakeholders" were skewed towards tax breaks for donations - i.e. more taxpayers' money for the parties. Presumably those same taxpayers who would have to stump up the extra cash are deemed not to hold a "stake" in the process.
The Review was also far from an independent and objective one. The Review's own website gave the game away. “Hayden Phillips,” it said, “will work closely with stakeholders, especially, the political parties….to produce recommendations which are as much as possible agreed between the political parties.”
In other words, the remit was not to come up with the best system, but rather to stitch something up which is acceptable to the main parties. Hence the delay in the review's final report - Hayden Phillips was not coming up with an objective recommendation, but trying to broker an agreement between the Tories and Labour.
The Tories initially asked for a £50,000 limit on donations which both Hayden Phillips and Tony Blair indicated they would accept. The fear that this would limit their trade unions subs then embroiled Labour in an internal row and the party subsequently lobbied the review against a donations cap.
The underlying assumption of the Review - and many of the bodies researching party funding - appeared not to be that the parties had been over-spending, but rather that funding by large donors needed to be replaced by some form of public funding.
Very little consideration was given to the argument that party funding - both public and private - has increased substantially in recent years and that lower expenditure might be both possible and beneficial.
As for the Review's own direct consultation exercise, the limited publicty meant that by the end of October 2006, they had only received 1,100 letters and 200 emails along with 200 posts to the online forum at www.partyfundingreview.gov.uk.
In his final report, issued on March 15th 2007, Hayden Phillips came up only with general recommendations including stricter limits on party spending and donations.
What are touted as "a comprehensive range of reforms" are in fact nothing of the sort and the premise that "an increase in public funding of political parties" will "enhance public engagement in our democratic system" flies in the face of all of the evidence to date - as state funding has increased exponentially over the past decade, public engagement has fallen.
The report also goes on to states that while the main parties agree on the need for more state funding - no surprise there - they are not yet in agreement on the exact nature of the proposed cap on donations or spending limits.
So rather than coming up with his recommendation - which was presumably the idea of the Review - the timid civil-servant, not wishing to displease his political masters - proposes "direct talks between the parties to resolve outstanding issues."
The message from pretty much all of the politicians seems to be: we have misbehaved - broken the law even - so you'd all better give us even more money so we won't do it again. In other circumstances, that might be called a lack of 'respect' - a suitable case for an Asbo, perhaps. But then these guys have one big advantage: they make their own rules.
How we got here
Early in 2006 a seismic political scandal broke with allegations that the government had sold political honours - including peerages - to help fund its election campaigns and party bureaucracy.
As the story built, it emerged that the Labour Party had been accused of selling peerages and breaking the law after four businessmen who gave Labour £4.5m in unpublicised loans were subsequently nominated to the House of Lords.
Labour went on to admit it had been secretly loaned nearly £14m ahead of the last election. The Conservatives then revealed that they had borrowed £16m from 13 wealthy backers, while the Liberal Democrats put up their hand to £850,000 from three donors. The true figure emerged later when the Electoral Commission found that the three parties had loans totalling £60m outstanding. The loans for peerages crisis had broken.
The only surprise should have been that anyone was surprised - or that Britain's notoriously un-deferential and forensic media had taken so long to rumble what was glaringly obvious: namely that Tony Blair's promise in his 1997 manifesto to "end the hereditary principle in the House of Lords" and make the Lords "more democratic and representative" had not been kept.
The result of this failure of House of Lords reform was both to increase the government's own power; and further to entrench the long-established habit among all political parties of selling slots in the nation's second legislative chamber for money.
Tony Blair and Labour were in fact caught out by the rule introduced in 2000 that all donations above £5,000 have to be declared. Loans at commercial rates were not declarable. But by using this mechanism the government was at the very least guilty of breaching the spirit of its own rules by disguising declarable donations as loans (the law was subsequently changed in March 2006 to make all loans declarable).
It gets worse. For if it is further shown that the loans were made at preferential rather than commercial rates, they would in effect be declarable donations even under the pre-2006 rules - and failure to declare them would then be illegal.
Finally, the promise of honours for cash is a criminal offence and the police began an investigation into whether people were promised honours in return for cash or loans. Among those questioned by the police were former Tory leader, Michael Howard, Health Secretary Patricia Hewitt, Science minister Lord Sainsbury, who susbequently resigned and Tony Blair himself - twice.
Most dramatically, in late January, Blair's close friend and fundraiser-in-chief, Lord Levy, was arrested and bailed for the second time on suspicion of conspiracy to pervert the course of justice, while Number 10 aide, Ruth Turner, was also arrested and questioned.
If the political classes were expecting a token investigation they were sorely disappointed. And as attention shifted to whether Number 10 had attempted a cover-up, politicians lined up to bemoan the length of the investigation and the damage done to public confidence.
The whole episode has thrown a glaring shaft of light onto the muddy world of political donations - and what big donors expect in return. No less than 25 of the 140 or so Labour peers created by Mr Blair since 1996 have made donations ranging from £6,000 to £13 million over the past decade, raising £25m for the party.
Every one of the six people who have donated a million of more pounds to Labour has found himself in the Lords or with knighthoods.
That being so, it is strange that the scandal really only broke over the fairly technical issue of whether loans were really donations, when the wider problem has been the failure to reform the Lords on democratic lines and the blatant sale of peerages to the cashpoint peers.
Odd, too, that there had been no police investigation of the sale of honours until the loans scandal broke. The issue of whether peerages were sold for loans or cash is, after all, secondary to the fact that slots in the mother of parliaments were being hawked around like the tarnished baubles of an impoverished aristocrat.
How do you explain this reticence? Possibly it's due in part to the fact that the three main parties have played the same game, so on the dog don't eat dog principle they have shown little appetite for attacking each other.
The British system also seems to operate on the basis that venality is often accepted as part of political life until something almost incidental brings it sharply into focus.
For example, paying MPs to ask questions was quite normal - and legal - for years. But it became the defining 'sleaze' issue of the Tory era only when two MPs were accused of taking their payments in cash in brown paper bags.
So although the huge donations made by many people who were elevated to the Lords were hardly a secret, it did not seem quite to constitute a scandal in Britain's often quirky body politic - until the technical breach of not declaring loans as donations became apparent.
But as the story rumbled on over the long, hot summer of 2006, with senior Labour peers and party workers being arrested and questioned, the government realised that the issue would just not go away.
So they neatly whacked it into the long grass, at the same time turning the scandal to their own advantage by announcing a Review of the Funding of Political Parties headed by Sir Hayden Phillips, a former senior civil-servant. Phillips was under orders to report before the end of 2006, but this was delayed several times and few doubted the government's ultimate aim of establishing fuller state funding for the political parties.
The government's big idea was that if the political parties can dip even deeper into the taxpayers' pockets, they will be able to avoid all of the unpleasantness of hidden loans, peerages for sale and the grubby business of raising their own money.
In fact the political parties are already significantly subsidised by the taxpayer. Existing public funding ranges from £19.32m to just under £50m a year, depending on how you make the calculation (full details in Existing Public Funding).
The lower figure is based on annual state funding for opposition parties, policy development grants, the cost of government special advisers, plus subsidies for opposition parties and the cost of special advisers in Scotland and Wales along with a proportion of MP's research allowances.
The higher total adds in the average value of free party political broadcasts and election postage.
Figures given on the Phillips review website do not include the cost of special advisers or MPs research allowances, or opposition funding in Scotland and Wales, producing a misleading picture of actual existing state funding.
Up until now public funding of the parties has only been the official policy of the perennially cash-strapped Lib Dems. They are now joined by both the Conservatives and Labour - and if you are in any doubt about the determination of the government to opt for public funding, these are the words of Lord Falconer, the Lord Chancellor (a former lawyer, who owes his lofty elevation to the Lords to his friendship with Tony Blair).
"The obvious worry," said Lord Falconer, "is that if a few people contribute a significant amount of money to a political party ... they will have undue influence on the policy making of that individual political party. That is a very, very real issue that needs to be addressed."
Indeed. There is something very wrong with our democracy when people feel so disconnected from national politics that general election turnouts have slumped from 78% in 1992 to just 59% in 2001. The turnout rose marginally to 61% in 2005, but only after postal voting became easier, combined with a massive publicity campaign urging people to register and vote.
In fact even at his 1997 landslide, Tony Blair received fewer votes (13.5 million) than John Major had five years earlier (14.1 million) when he just squeaked home. Something is wrong - and throwing more money at politicians is not the answer. What is to be done?
For and against
There are arguments in favour of further public funding. One of the most cogent is that politicians need better resources to counter the enormous power of the media. Another is that it would allow the parties to reconnect to the public by making them less dependent on big donors, such as trade unions or rich businessmen who may unduly influence their policy.
But this is a bit like a mob of criminals who have misbehaved saying they'll be good boys in future - as long as the very people they have been abusing stump up to keep them in the style to which they would like to become accustomed.
The arguments against full public funding include:
Sleaze and political funding
Tony Blair came to power in 1997 with a promise to "clean up British politics". "I want", he said in a personal statement in his 1997 manifesto, "to renew faith in politics through a government that will govern in the interest of the many."
"We will clean up politics," Blair went on, "decentralise political power throughout the United Kingdom and put the funding of political parties on a proper and accountable basis."
"We will", he said, "be whiter than white."
Tony Blair did indeed build on his predecessor, John Major's attempts to clean up British politics through the Committee on Standards in Public Life. The so-called Nolan committee was originally set up by Major in 1994 and concentrated on the conduct of MPs and ministers.
But despite demands by Labour in opposition led by Tony Blair, the original committee had no remit to examine party funding - largely because of Tory sensitivity on the issue. Secrecy surrounded many large Tory donors; one £500,000 donation had come from Asil Nadir, a disgraced overseas businessman who had fled to country to avoid prosecution.
In 1997, now in power, Blair finally extended the committee's remit into party funding. Labour, however, were not immune from criticism, especially over the 'blind trusts' used to finance the offices of Tony Blair, Gordon Brown, John Prescott and other Labour figures when in opposition.
The idea of blind trusts was that publicly-minded individuals could contribute anonymously to the running of opposition leaders' offices so that they could not be seen to be seeking favours. A further benefit was that blind trust donations did not count as party contributions and so were not declarable in company accounts.
There were suspicions, however, that the beneficiaries - or those close to them - regularly did find out who their supporters were. At least two people publicly named by the Sunday Times as Labour Leader's Office Fund donors - printing millionaire Bob Gavron and Granada Television's Alex Bernstein - both subsequently secured peerages.
Lord Levy, then just David Levy, was a key figure in the blind trust system, which enabled Blair to run the biggest opposition leader's office in history, employing some 20 full-time staff on substantial salaries. Although Labour has never revealed the figures, the best estimate is that in just three years before the 1997 election, the Labour leader received around £2.5m.
In 1998 the Committee for Standards in Public Life came out against full state funding of political parties, but did extend the existing state funding with an annual policy research grant of £2m. The report also proposed that the parties should disclose all donations in excess of £5,000, along with a ban on foreign donations, limits on party expenditure at elections, an Honours Scrutiny Committee to vet appointments and an end to blind trusts.
Tony Blair's new government accepted all of these recommendations, but soon found itself in trouble as news broke of a £1m donation to Labour from Formula 1's Bernie Ecclestone, which appeared to have influenced the government's decision to exempt Formula 1 from the newly introduced ban on tobacco advertising. Labour were eventually forced to repay the money.
Then, in 2001 another crisis broke with the 'cash for passports scandal' and claims that Tony Blair was involved personally in brokering the Hinduja brothers' £1m donation to the Dome, at the same time as one of the Indian tycoons was applying for a British passport.
At the time of their donation, the Hindujas were alleged to have paid illegal bribes in an Indian arms deal and had already had two earlier passport applications turned down by the Major government because of doubts as to their character.
However, it emerged that after 1997, Hinduja's passport application was given special priority. He also received special treatment for an application for citizenship. Peter Mandleson resigned for the second time over the scandal and the subsequent Hammond investigation found that government ministers had used improper influence in dealing with the applications.
Yet more exotic foreign businessmen floated onto the scene shortly after when it was learnt that Lord Levy had played a key role in obtaining steel magnate Lakshmi Mittal's £125,000 Labour Party donation. Mittal was UK based, but Tony Blair became embroiled in the 'steelgate' scandal when it transpired that he had personally lobbied the Romanian government in favour of a Mittal takeover of a Romanian steel company.
Some people began to say that cash could clearly buy peerages, passports and policies under Tony Blair. But what else could it buy?
Geoffrey Robinson MP is a former managing director of Jaguar cars and Innocenti (which made Minis and Allegros in Italy) during the 1970s', when both companies were part of state-owned British Leyland. During Robinson's reign at Jaguar, the company hit what was probably its nadir in terms of sales and quality. Robinson was known both for his socialist leanings and for his love of the high life, but after a number of serious problems he departed hurriedly. Yet the young Robinson emerged from his career at crisis-stricken British Leyland to walk into a safe Labour seat in 1976.
Robinson then buddied up to the late and unlamented former Labour MP Robert Maxwell, whose massive pension fraud resulted in a £400m loss for his former employees. No such bad luck for Robinson. In a complex deal, he had emerged with one of the few viable parts of the Maxwell empire before it went bust.
Later, Robinson found himself mysteriously benefiting from a Swiss registered trust-fund worth a reported £12.75 million, partly invested through the offshore tax havens of Guernsey and Jersey. Reportedly the cash - and possibly a much larger sum besides - came from the will of the deliciously named Madam Bourgeois, the twelfth-richest woman in the world before she died in 1994.
Robinson had befriended Mme Bourgeois in the '70s when she headed Belgium's most successful Jaguar cars franchise - and reportedly was also involved in questionable activities, including making false warranty claims for Jaguar cars worth millions.
Robinson hardly shone as a Labour MP and towards the end of his party's long period in opposition he was almost invisible, ranking 600 out of 652 in terms of Commons attendance during the 1992-97 parliament.
Yet on May 2nd 1997, Robinson was given the important Treasury job of Paymaster General, where he was put in charge of pension reform. There, he presided over a period of policy failure before being forced ignominiously to resign in 1998 over his undeclared loan of £300,000 to Peter Mandleson to buy a house. Since then, Robinson has been involved in a series of financial problems, including the bankruptcy of his former company Trans Tec and a failure to declare financial interests.
So why was Robinson given a top spot in Gordon Brown's Treasury team? It might have been ability. He was, after all, one of a small number of Labour MPs with business experience - however patchy the record and Byzantine the dealings. But then there have been suggestions that his promotion might not have been unconnected with Robinson's donation of more than £250,000 to Labour in 1997. He also gave £60,000 to the blind trust that funded Gordon Brown's office before the 1997 election.
Robinson also kept a penthouse at the five-star Grosvenor House hotel in London's Park Lane, where he frequently entertained Gordon Brown. Robinson's mansion in Tuscany, inherited from Mme Bourgeois, hosted the Blairs for two holidays in 1996 and 1997; and both Gordon Brown and the Blairs have also stayed at his apartments in Cannes - also ex-Mme Bourgeois.
The Cashpoint Peers
But perhaps the biggest blot on the government's record is the cash for robes scandal, which has burned long and slow since 1997 as it has become increasingly clear that a large number of new Labour appointments to the House of Lords had been large donors to the party.
Short of the democratic reforms promised in the '97 manifesto,Labour had a reasonable case to appoint a large number of new peers to redress the balance in the Lords in favour of the Conservatives.
Labour were also not alone in the dock. The Conservatives and Lib Dems appear equally to blame. But Tony Blair not only nominated many more peers since 1997, but he also promised to be "whiter than white". Yet no less than 25 of the 140 or so Labour peers created by Mr Blair since 1996 have made donations, ranging from £6,000 to £13 million, raising the party a grand total of £25m.
Among Blair's first nominations to the Lords was Michael Levy, a music industry tycoon responsible for bringing us Alvin Stardust in the '70s. Levy had raised £7 million to bankroll Mr Blair in opposition. He is now Mr Blair's unofficial treasurer and fundraiser, nicknamed "Lord Cashpoint". Levy has also been appointed as Tony Blair's unofficial ambassador to the Middle East.
Lord Levy, as he now is, may have many qualities. But many people also doubt whether he would have come to Mr. Blair's attention as a possible peer if it had not been for his generous donations. Lord Sainsbury of Turville, another major donor who has given about £13 million to Labour since 1994, including a £2m loan, was also elevated to the Lords and made a government minister, though he resigned in October 2006 after being questioned by the police. Few doubt Lord Sainsbury's abilities, but many also feel that his donations were at least a factor in his peerage.
Other donors who made it to the Lords include Ruth Rendell, the crime writer (£15,000); David Puttnam, the Oscar-winning film director, (£25,000); and Michael Montague, a largely unknown businessman who died in 1999 (£1 million). A peerage was also given in 1998 to Paul Hamlyn, the publisher, who gave £600,000 before 1997. Christopher Haskins, the chairman of Northern Foods, donated £79,000 and became Lord Haskins. Waheed Alli, the multimillionaire founder of Planet 24 Television, made free party political films for Labour worth an estimated £100,000 and also made it to the Lords.
In 1999, Robert Gavron gave £500,000 to Labour weeks after he was made a peer - having already given £500,000 in 1996. Others include the broadcaster, Melvyn Bragg, who helped to raise £79,000 for Mr Blair's Labour leadership campaign and made a personal donation of £32,500. He is now Lord Bragg. The barrister Peter Goldsmith made a donation in 1996. Goldsmith was a successful QC, but it is possible to argue that there were finer legal minds among Labour supporters. However it was he who became a peer in 1999 and Attorney-General in 2001.
In 2001, Paul Drayson donated £100,000 just before his company won a £32m smallpox vaccine contract from the government. In 2004 he was made a peer. He handed over another £1 million in the same year and was later made a defence minister.
The Conservatives were hardly more scrupulous. Among recent Tory peers are prominent donors Irvine Laidlaw, the Scottish entrepreneur; and Stanley Kalms, the former chairman of Dixons.
Of course, any one of these worthy people might have been ennobled without any donation. But it is an odd coincidence that every person who has given Labour a million pounds or more has received either a peerage or a knighthood.
House of Lords reform
Labour's 1997 election manifesto promised to "end the hereditary principle in the House of Lords" and to make the Lords "more democratic and representative".
Despite a massive Commons majority and three election victories, this has not been delivered. Tony Blair could easily have got legislation for an elected or partly elected House of Lords through both Houses. After all, he had a clear mandate. However, he chose not to prioritise the issue.
The reason? An unreformed House of Lords suited him very well. First, the government did not want an accountable and legitimate House of Lords challenging the government's authority.
Second, an un-elected Lords gives massive patronage to the government, not just in terms of rewarding 'helpful' people, but also in keeping the Commons on-message - potentially recalcitrant ex-ministers and senior backbenchers can be kept in line by the whiff of a cosy seat on the red benches after they retire from the Commons.
Third, peerages could be used - indirectly of course - as a carrot for wealthy donors to the party.
As a result, the government went slow on its pledge of Lords reform, citing a lack of agreement on the way forward and the possibility of the Lords fighting a last ditch battle for survival by delaying government legislation.
Instead, Tony Blair limited himself to stitching up a deal with a Tory peer, Viscount Cranborne, to keep 92 of the hereditary peers in the Lords, where they continue to legislate on our lives on the sole basis of who their father was (would you employ a hereditary nurse or doctor? Thought not).
One perverse result of this deal was to help Tony Blair to keep his pledge of democratic reform - sort of. The 92 hereditary peers formed the only elected element of the Lords. In a bizarre parody of democracy, hereditary peers from each party elect a replacement hereditary peer to the Lords from their own party each time one pops his or her clogs.
Following this first stage of "reform", and after 18 years in opposition to consider their policies (and a clear manifesto pledge), the government seemed to have no idea what to do next. Or maybe it did. It appointed a commission under Lord Wakeham, a Tory peer and 'fixer', to examine the issue of Lords reform - with a clear nudge from Tony Blair in favour of an un-elected chamber.
In fairness, the government did introduce independent vetting of appointments to the Lords with the House of Lords Appointments Commission. This both vets nominations from the main parties and considers applications from non-political cross-bench peers.
While this is undoubtedly an advance, the committee's remit to ensure that nominees are of "good standing in the community" with particular regard to HM Revenue and Customs and "other regulatory authorities" sounds a little like the great and the good appointing each other to rule over us.
Would, for example, George Galloway get past the appointments committee? Almost certainly not. No bad thing some people may say. But the unavoidable fact is that when the voters had the chance, they chose Galloway - and they will also get the chance to throw him out.
People don't have that opportunity with the second chamber. Instead, the decisions on who sits in the Lords are made by the party leaders who make most of the nominations; and the six members of the House of Lords Appointments Committee who vet them and also consider applications from independent people to become cross-bench peers. Three of the six committee members are party nominees, one a bank chairman and one a tax consultant. And once you are in the Lords, it's a job for life - little short of death or imprisonment can remove you.
One of the committee's criteria is whether political nominees from the main parties who have also made donations would have been "credible nominees" if they had not made donations. This has been one of the government's core defences against claims that it has sold peerages. But of course the real question is whether the parties would have nominated them in the first place if they had not made large donations.
However, the loans for robes scandal has forced some action. After years of drift, in March 2007 the Leader of the Commons, Jack Straw, gave MPs an opportunity to vote for several options ranging from a completely appointed Lords to 100% elected.
To everyone's suprise and not a little horror - especially, one suspects, in the prime-minister's case - the Commons voted by a large majority for a fully-elected second chamber.
However, no-one expects swift action. For one thing, in an unprecedentedly high turnout, peers themselves voted overwhelmingly against an elected second chamber and word in the Lord's Tea Room is that they plan to use their powers to delay the legislation of any governement who takes them on - until, at least, a decent redundancy package is offered.
An all-party committee will be convened to look into the options, but Gordon Brown, who is thought to be in favour of an elected second chamber, may want to avoid a fight with the Lords.
There is also the issue of the electoral system for any second chamber. Already the parties are licking their lips at the prospect of proportional representation and party-lists, which would lead to an appointed chamber by another name.
All in all, it is expected to be at least five years before any new system is introduced - and 15 years after Blair was elected promising "democratic" reform of the Lords.
The arguments against an elected chamber include that it would continually challenge the Commons and make government impossible; and that too radical a reform would anyway be blocked by the Lords. It has also been argued that people don't want more politicians.
The last argument may be true, but it has to be suspected that the public also quite like the ability to kick out those who rule over them now and again. An elected second chamber could also have limited powers, which would prevent continual challenges to the Commons. And it is ridiculous to suggest that with its massive mandate the government could not have implemented proper democratic reform. It chose not to do so because maintaining a House of Lords with limited credibility and maximum potential patronage suited its purpose.
Remember that a British prime-minister with a good Commons majority is relatively more powerful than a US President. The House of Lords as it stands is no more than an irritant and can only really delay legislation. The US constitution by contrast has checks and balances in the form of the Supreme Court, while the US elected chambers, the Senate and Congress, are less bound to political parties and more prone to challenge the President, even if the majority are from his own party.
That is why Britain needs an elected, accountable, legitimate House of Lords as part of a balanced constitution. Keeping the hereditaries is plainly daft; and while appointed peers are often defended on the basis of their expertise in particular fields, in practice the fashionable and articulate professions have been heavily over-represented in appointments to the Lords - apart from superannuated politicians, the Lords is stuffed with media people and lawyers. The Lords does contain experts in a number of fields. But experts also tend to argue their own vested interests and expertise can anyway be brought in to advise and their advice be objectively judged.
A mix of appointed and elected peers - another commonly touted solution - would create a two class second chamber with limited logic or authority. Only an elected second chamber would really work. After all, if you believe in democracy as the least bad option for government, it is difficult to deny people the choice of representative in a second chamber. Jobs for life don't work and nothing quite keeps you on your toes like having to argue the toss every few years on windy doorsteps with those who pay your salary - and can chuck you out.
Accountability is also one of the Seven Principles of Public Life, which form the cornerstone of the Commission for Standards in Public Life - principles which are supposedly upheld by all of the main parties.
"Holders of public office," this principle states, "are accountable for their decisions to the public."
But there can be no real accountability without democracy. By failing to keep its pledge of democratic reform of the Lords the government has broken that principle.
Too busy to vote?
One criticism of many peers is poor attendance. Lord Birt, the former director-general of the BBC who was ennobled by Tony Blair, voted just 28 times out of a possible 897 over a recorded period - 3.5% of possible votes. Another media peer, Lord Hollick, the former chief executive of United Business Media and Express newspapers, a Labour peer and donor, showed up at Westminster just four times out of 76 and voted twice out of 40 opportunities during one recorded period.
You might expect newly ennobled 'working' peers to be more diligent. Not always. Of 23 new Labour peers appointed in May 2004, two appeared in less than half of the votes up to July 2005 - and only 12 have voted more than three-quarters of the divisions - (source for all voting records: www.publicwhip.org.uk.)
Newly ennobled Conservative peers performed even less well. Of five new peers appointed in May 2004, only one has voted in more than half of the divisions.
The big donors are particularly noticeable by their lack of diligence. Tory Lord Kalms voted in only 30.3% of the divisions in the year since his elevation to the peerage; and Lord Steinberg in just 20.8%.
The Lib Dems were barely better. Only three of their eight new peers found the time to vote in three-quarters or more of the divisions. Lord Alliance (£250,000 donation) made it to just 17.9% of the votes.
So is the new breed of independent, crossbench peer, the so-called People's Peers chosen for their expertise or public service any better? According to their website, the cross-benchers "bring specialist professional or sectoral experience to the House to improve legislation, vote on it, and promote well informed debate about relevant policy more broadly."
"Vote on it" is exactly what they seem not to do - very much, anyway. Of seven new crossbench peers ennobled in May 2004, only one had managed to attend more than half the votes by October 2006 - Baroness D'Souza at 54.3%.
Of the rest, Lord Rana had voted just once - 0.3% of the divisions. Lord Broers at 3.2% beat him comfortably. In fact, the seven new crossbench peers had between them averaged just 17.4% of votes.
So has the 2005 intake of People's Peers been more diligent? Up to October 2006, the worst performer was Lord Hastings at two out of 154 possible votes (1.3%). The best was Lord Rees at nine out of 154 (5.1%). Of the 2006 intake, Lord Bilimoria made it to none of 33 possible votes; top of the class was Lord Dear at 16.1% - none of the other six new peers made more than 10%.
Ennobled, retired MPs do not always raise the average. Former Tory chairman and MP, Lord Patten of Barnes, managed only 9% of divisions - 19 out of 211 - during the first part of 2005. Lord Mahwinney, another former Conservative MP and party chairman, voted in just 30.3% of divisions in his first year. Longer established Lord Tebbit, also a former MP and party chairman, managed 30.7% of 794 divisions during a recorded period.
The image of the Lords as a community care programme for superannuated senior politicians is not helped by such poor voting records. Lord Hurd, former Conservative foreign secretary and member of the Lords Appointments Commission voted in only 21.8% of divisions over a period of several years. Former Tory Chancellor, Lord Lawson of Blaby, was just behind at 20% out of 802 possible votes.
The novelty for more long-established life peers also seems to wear off. Labour donor Lord Gavron managed 33% out of a possible 794 divisons. Lord Puttnam made it to 28.3% of the votes during the same period and Lord Alli to 51.8%. Lord Bragg was just behind at 48%. Lord Young of Graffham, the Tory peer ennobled by Margaret Thatcher in 1984 and briefly in her Cabinet voted in a mere 1.5% of the divisions.
What about the hereditaries who fought so sternly to keep 92 of their seats? Very few make themselves available for more than 50% of divisions - a significant number hover in the 20-40% range. One, Lord Moynihan, is both an ex-MP and a hereditary peer. He made just 34.4% of a possible 794 divisions.
Then there is the suspicion that some peers do quite well out of their positions. Lord Stevens of Kirkwhelpington, the former Commissioner of the Metropolitan Police (11.2% of votes), has been criticised in the media for his over-extensive interests with suggestions that ennoblement has helped him to no less than five non-ex directorships, the chairmanship of two inquiries - and secretarial assistance from a top firm of consultants.
Lord Bell, formerly Tim Bell, worked with the Saatchis on Conservative campaigns and now runs Bell Pottinger and Good Relations, both heavily involved in public affairs lobbying. Questions have been raised as to whether his position in the Lords has any relationship to his business. Lord Bell made it to 12.5% of 794 divisions, while his former boss, Lord Saatchi, managed 17.4%.
Defenders of the House of Lords point out that peers receive no salary and that being a peer is not supposed to be a full time occupation. The Lords have also on occasion provided principled and expert opposition to the government.
Of course, many Lords do work hard and voting records can also be misleading as peers sometimes attend but abstain from voting. Lord Broers, for example, is defended for his work as chairman of the House of Lords Science & Technology Committee where he deploys his expertise as President of the Royal Academy of Engineering.
But the attendance register does also show a broad correlation between attendance and voting - and it is anyway not unknown for peers to register their attendance, draw their allowance and disappear for the remainder of the day - perhaps hanging around for question time, perhaps followed by tea and buns in the Lords' palatial Tea Room and not much else.
The hours of Lords sittings are anyway not demanding. The expenses and allowances are reasonable, so there seems little excuse to be a member of a chamber and to play such a small part in its proceedings.
In addition, the priorities of the House of Lords do not always seem to be those of most people. One of the consistently best attended issues between 2002-4 was hunting, with the number of peers voting reaching 424 (19th March 2002) - significantly higher than votes on education or health debates over the same period. Oh, and their Lordships did manage to turn out in record numbers in March to vote against their own abolition - 455 managed to make it through the voting lobbies.
The bigger issue is that a legislative chamber in which it is not uncommon for members to turn up to less than 10% of its votes - and where too many of its members treat their titles as vanity trophies and value the place more for its club rights and free central London parking than as a serious second chamber makes it difficult for the Lords consistently to be treated as a serious, accountable legislative chamber and counterweight to a powerful prime-minister with a Commons majority.
One is also entitled to ask of the very high proportion of peers who vote in less than 30% of the available divisions why they wish to remain as legislators? If they had been elected, their constituents might reasonably pose that question at the subsequent election.
Loans for peerages
The loans for peerages scandal itself broke when four successful, but relatively obscure businessmen who lent money to Labour were in 2005 nominated for peerages. They were: Barry Townsley, a stockbroker who has also donated money towards a City Academy School; Sir David Garrard, a property developer who also donated money to a city academy; Dr Chai Patel, chief executive of Priory Clinics; and Sir Gulam Noon, who has said that he was advised to keep a £250,000 loan secret.
As an example of the honours merry-go-round, Sir David Garrard had originally given £70,000 to the Tories under William Hague. But in 2004 he changed sides and gave £200,000 to Labour and invested £2.4 million in Mr Blair's city academies' project. He was subsequently nominated for a peerage.
Lords, sales of honours and sleaze - a brief history
More than £100m was spent (in today's money) during the1880 general election by candidates seeking to buy seats and votes. As a result, the 1883 Corrupt and Illegal Practises Act outlawed the practise, though hereditary peerages could still in effect be bought.
That ended - in theory - after the Lloyd George government fell in 1922, partly due to a sale of honours and peerages scandal.
The subsequent Honours (Prevention of Abuses) Act 1925 created two criminal offences relating to the procurement of titles or honours.
The first is aimed at the person who "sells" honours. It is an offence to take money as an "inducement or reward" for procuring an honour for someone else - or for trying to do so. The definition of a reward is not confined to money: any "valuable consideration" will do. This would appear to cover a low interest loan.
The second main offence is aimed at the person who "buys" an honour. He commits an offence if he gives anyone any money or valuable consideration as an inducement or reward for procuring an honour for himself or anyone else.
It is under the terms of the 1925 Act that the police are currently investigating the main political parties following a complaint by a member of the Scottish parliament (MSP).
Spin, special advisers and the new politocracy
The special adviser system was introduced in 1979 to give senior government ministers more political support than their impartial civil-servants could offer. Special advisers are employed as civil servants, but they are not obliged to be impartial and their post ends with their government.
Although senior ministers were initially limited to two special advisers each - and this limit was rarely reached under the Thatcher and Major years - the Blair government controversially increased numbers of special advisers from 34 costing £1.5m under John Major, to 85 costing £5.5m by 2004.
Most people accept the role of special advisers in the modern political world. They help to ensure civil-service independence by performing the political role. Government ministers also face huge demands and do need political support in dealing with the media.
There have however been criticisms of special advisers' behaviour and the growth of spin culture. Tensions have also emerged between special advisers and civil servants.
Many special advisers have also benefited from their position and slid seamlessly and profitably from their special adviser posts into private sector lobbying, giving rise to unease that they use their contacts to special advantage.
The creation of a cadre of professional career politicians also raises concerns about the growth of a political class out of touch with the real world. The proportion of MPs whose previous job was in politics has risen from 3% in 1951 to 10% in 2001, with the biggest increase coming since the early 1980s (source: House of Commons Research Paper 03/59).
Originally it was thought that a proportion of the special advisers would be substantial and experienced people. But from the late '80s, it became increasingly common to appoint young, ambitious would-be politicians with the result that government special advisers sometimes look like a frat house for wannabe ministers.
Among current government cabinet ministers who worked their way through the special adviser system or have spent the bulk of their previous lives in politics are David Milliband, Patricia Hewitt and Hilary Benn. On the other side, both David Cameron and George Osborne spent much of their careers as special advisers.
The Jo Moore/Martin Sixsmith affair, which broke early in 2002, encapsulates many of the problems of the prevailing special adviser culture.
Jo Moore was special adviser to Stephen Byers at the Department for Transport, Local Government and the Regions (DTLGR). Martin Sixsmith was a journalist with Labour sympathies who was originally given the job of director of communications in the Department of Social Security as part of a controversial government policy of replacing impartial civil-servant press officers with government loyalists.
In late 2001 Sixsmith moved, after a lucrative spell with the private sector, to the DTLGR where he should have got on swimmingly with Jo Moore.
However Moore had already been in trouble for suggesting in an email that a controversial announcement should be "buried" during the media coverage of the 9/11 attacks. Soon after Sixsmith's arrival, the row flared up again when another Moore email attempting to "bury" bad news on the day of Princess Margaret's burial was leaked to the press.
Moore initially claimed the email was a fabrication. Her story was backed up by Byers. However civil servants in Ms Moore's department began to brief the press that an email had been sent. The "fabrication", it turned out, was merely that the leaked version been edited by Sixsmith to make it more damaging to Moore.
So a government special adviser had twice sought to 'bury' announcements of bad news for the government on days of bigger, external bad news stories; and her chief of communications had tried to stitch her up by editing the second email to make it look even worse - and then leaked it to the press.
In February 2002 it was announced by Byers that Moore and Sixsmith had both resigned. That, however, was not the end of it, because Sixsmith later claimed that he had not resigned, that the announcement had been premature and that had been forced out by Stephen Byers.
Byers was forced to apologise for giving misleading information - twice. When Sixsmith finally agreed to leave his job, he took with him a reported £200,000 pay-off. Byers staggered on for another three months before himself resigning after further criticism of his competence.
What lay behind this affair was the tension between civil-servants and a special adviser with poor people skills; and the culture of spin which pervades the government.
The fault line between special advisers and civil servants can be a difficult place. Special advisers cannot in general instruct civil-servants, who often resent their role and envy their access to ministers. The huge increase in numbers and relative inexperience of special advisers after 1997 exacerbated that. Many special advisers step carefully around this and cultivate good relations. Jo Moore did not and her attempt to manage news led to her downfall.
But the most famous special adviser was Alastair Campbell, Tony Blair's communications chief who worked for Blair in opposition from 1994 and in 1997 became his chief press secretary, a post which for the first time became a political, special adviser appointment rather than a civil-service one.
Campbell had been a highly-partisan Daily Mirror political editor whose observation - true or false - that John Major tucked his shirt into his underpants became one of the defining images of a weak prime minister. Along with Peter Mandleson, Campbell has been credited as one of the arch exponents of political spin. Together, they were ruthless in exploiting the sleaze issue to discredit the Major government.
In opposition, the pair specialised in feeding stories to sympathetic journalists. However once in power things were not so easy. In opposition you can make news and keep the government off-balance. The Major government was also a pathetically easy target, which served to exaggerate Campbell and Mandleson's skills. But in government, things tend to happen to you and Campbell found it hard to control a stream of bad news stories and scandals.
A second problem was that what press officers say in opposition is rarely closely examined. But Campbell's robust style had made him enemies. Once in government, statements were scrutinised for spin and found to be misleading.
One of the most infamous examples was the 'double counting' of government spending, which first came to light in 1999. Departments were encouraged to aggregate their planned spending increases year by year, which resulted in headline figures up to double the real increase. Campbell also encouraged a steady flow of announcements of populist government initiatives designed too get tabloid headlines, but when few resulted in action, the result was growing cynicism.
The result of this spin culture was an almost complete mistrust of government statements, which reached its peak in 2003 with the 'dodgy dossier' scandal in which the government was accused of exaggerating Saddam Hussein's weapons of mass destruction.
Campbell himself came under closer public scrutiny in 2000 when he was instrumental in authorising a documentary about life in Number 10 - in which he emerged as a dominant figure compared even with the prime-minister and was dubbed the true deputy-PM. He resigned in 2003 to pursue a profitable life in the private sector.
Campbell's has enjoyed a glittering career. But as with Jo Moore at the other end of the special adviser food chain, there have been criticisms than his promotion of spinning has contributed hugely to the distrust of government. If the art is to hide your art, Campbell has failed miserably. The whole performance has been all too obvious.
Campbell, like Moore, also failed his master by becoming the story rather than the messenger - perhaps to his own advantage, but undoubtedly to the detriment of his party and government.
His relentless pursuit of sleaze in the Tory years and personalisation of politics helped get his party elected in 1997, but his tactics, such as the John Major underpants story, contributed to the debasement and trivialisation of politics - a tendency he frequently grumbled about when later he found it working to his disadvantage.
The final area of concern relates to the sliding door between government/public service and private gain. Many former advisers have moved on to very well-paid jobs with lobbying and PR companies. Tim Allan, a former Downing Street adviser, became Director of Corporate Communications for Rupert Murdoch's BSkyB. Anji Hunter, Tony Blair's former 'gatekeeper' private secretary, took over as Director of Communications at BP on a salary of £200,000.
A large number of former advisers now work in public affairs lobbying, where their access to senior government figures makes them valuable assets. Chime Communications, Bell Pottinger and Good Relations, the hugely profitable public affairs lobbying companies run by Lord Bell, former Saatchi and Saatchi partner and PR-man to Margaret Thatcher, is stuffed with former government special advisers and Labour officials.
So the chief concerns about the special adviser system include that it is creating a class of relatively inexperienced people with an inside track on politics; that spin culture has so debased trust in government that the timing and content of virtually every government announcement is now suspect; too often the advisers themselves have become the story; and in a less ideological and more managerial political age, advisers put career before principle to profit from their position by sliding seamlessly into lucrative posts.
Part of the answer came from the 2000, the Neill Committee on Standards in Public Life, which recommended a limit of 100 special advisers; that the advisers should be bound by the same rules as ministers about what jobs they can move on to; and that a clear code of conduct should be introduced to ensure that 'spin doctors' did not interfere with civil servants. These recommendations were initially accepted by the government, but to date no action has been taken.
Existing public funding
The main political parties already receive very significant sums of taxpayers' money and this has increased significantly over the past decade.
A conservative estimate of the direct state funding of the main parties totals £19.32m a year - this includes subsidies for the oppostion parties, policy grants, a portion of MP's research allowances and the cost of government special advisers. In addition, the parties benefit from free party political broadcasts worth £16m annually.
In general election years, the parties also benefit from further party broadcasts worth £68m and free postage for election mailings worth another £20m.
Averaging the value of direct and indirect state funding and the benefit of free broadcasts and postage gives an average annual subsidy for the political parties of close to £50m a year.
Average annual public funding for political parties 2004/5 - £millions
Funding for opposition parties - Short and Cranbourne Money plus travel allowances - £7.17m
In 1975 the Labour Leader of the Commons, Edward Short, introduced funding for the opposition leader, front bench and whips' office as well as for other opposition parties with minimum of two seats in the Commons, or one seat and 150,000 votes nationally.
Short Money is distributed according to a formula - £12,793 for each seat in the Commons and £25.55 for every 200 votes nationally.
In addition, the Leader of the Opposition gets £596,000 to help run his office.
In 2005/6, Short Money payments totalled:
Conservatives - £4.343m
Lib Dems - £1.597m
Others - £400,000
The argument for Short Money is that in order to carry out their job of opposing the government, which has access to the resources of the civil service, opposition parties need funding to help with research and policy development.
In addition, in 1993 a travel fund for opposition frontbenchers was set up by the Major government. This is pro-rated to Short Money and totalled £140,531 in 2005/6.
In 1996, Viscount Cranborne introduced so called Cranbourne Money for opposition parties in Lords - in effect the Lords' equivalent of Short Money. In 2005/6 the totals were:
Conservatives - £436,000
Lib Dems - £218,000
Crossbenchers - £39,000
Policy development fund - £2m
The 1998 Committee on Standards in Public Life recommended a £2m policy development fund, which is now distributed among political parties with two or more sitting MPs. In Great Britain the Conservatives, Labour and Liberal Democrats receive the same amount of money, approximately £458,000. In Northern Ireland the eligible parties there receive the same amount of money, approximately £155,000. The Scottish National Party receives approximately £162,000 and Plaid Cymru approximately £151,000.
Funding for the governing party - special advisers and media officers - £5.5m
In 1979 the special adviser system was introduced. The idea was that while government ministers had the resources of the civil-service to call upon, civil-servants were required to be impartial and ministers needed more political advice and assistance in their departments. Special advisers are appointed as civil servants, but unlike civil servants, they leave their jobs when the government changes. They are also bound by the civil service code except in areas relating to impartiality and what jobs they can move on to.
Senior ministers were initially limited to two special advisers each and this limit was rarely reached under the Thatcher and Major years, during which many departments only had one special adviser each.
However the Blair government entered office in 1997 acutely aware of the difficulties the Major government had encountered in dealing with the media and pushing its policy agenda. One response was to crank up the numbers of special advisers. As a result, numbers rose from 34 costing £1.5m under Major in 1994 to 85, costing £5.5m ten years later.
In 2000, the Neill Committee on Standards in Public Life recommended a cap of 100 special advisers. The government initially accepted this, but later changed its view and refused any limits, though numbers have not yet breached the 100 mark.
In addition, after 1997 the new government removed 16 out of 18 senior press officers in government departments and replaced them with people loyal to the government. There is no reliable estimate of the cost of effectively placing political nominees in departmental press offices, but a not unreasonable figure would be £1.5m a year - we have not included this as public funding for the government party, even though many people would consider it as such.
Other funding and benefits - £35.55m
All general election candidates get free postage for one letter to each constituent, which is reimbursed to the Post Office by the government at a cost of around £20m per general election.
Most parties also benefit from free TV election broadcasts, which are worth an estimated £68m in an election year and £16m in a non-election year. (Andrew Tyrie, quoted in Electoral Commission Background Paper, The Funding of Political Parties, May 2003)
Security at party conferences costs the taxpayer another £5m.
Excluding the security element, which does not directly benefit the parties, the parties benefit from around an average of £35.5 million a year in free publicity.
Scotland and Wales - £1.4m
Although the Phillip's review includes Scotland and Wales, the figures given for existing public funding on the review's website do not include the totals for the Welsh Assembly and Scottish parliament.
In fact the opposition parties in the Scottish, but not the Welsh assembly receive their equivalent of Short Money:
Scottish National Party - £175,000
Conservative - £90,000
Liberal Democrat - £65,000
Green - £5,000
Scottish Socialist party - £5,000
There are a further 12 special advisers in Scotland costing £709,000 and 6 in Wales at a cost of £350,000.
MPs - £3.25m
MPs each have an office costs allowance which has increased substantially in recent years to £104,000 pa. This is intended to cover office and research costs, including an element for a constituency office which in the recent past would usually have been funded by the local party.
It now looks like MPs will shortly award themselves a further £10,000 a year for 'communications'. To date they have also been allowed unlimited postage, leading to suspicions of abuse - Andrew Dismore, a Labour MP for marginal Hendon, spent £25,000 on postage in the 2005/6 year. Many MPs clearly use the free post to mailshot their constituents.
These allowances are intended to help MPs to carry our research and look after their constituencies, but the dividing line between what constitutes legitimate communication and political activities is unclear. What is clear is that many MPs researchers are primarily political; and many use their allowances and free postage for political ends (there are now proposals to prevent the worst abuses of free postage). Members of the Lords can also claim limited secretarial and research costs.
The very conservative assumption that each MP devotes on average £5,000pa of their allowance on political activities results in a total public subsidy of £3.25m to the political parties. The true figure is almost certainly much higher as MPs are allowed to spend up to £20,000 a year on their constituency office and many spend up to this level.
This estimate does not include any element of the staff allowances of Members of the Scottish Parliament, which totalled more than £9m in 2005/6; or the staff costs of members of the Welsh assembly; or the substantial costs of running the libraries of the House of Commons, House of Lords and the two assemblies, all of which provide high level research assistance to their members at considerable cost.
Increase in state funding
The amount of state funding received by the government and opposition parties has also increased rapidly and ahead of inflation over the past two decades.
The total available mainly to the opposition parties has risen from £1.5m in 1987, to £2.2m by 1997 and £9.17m in 2005 (all at constant 2005 prices).
This represents an increase of more than 600%, due to above inflation increases in Short Money and the introduction of Cranbourne Money, the opposition travel allowance and the policy development fund.
Adding in Short Money for the Scots' assembly adds £340,000 and pushes the increase to 634%.
Including the cost of special advisers, who benefit the governing party, gives a cost in 1987 of £3.4m (at 2005 prices). By 1997 this had risen close to £3.7m and by 2005 to £14.67m - an increase of nearly 400% in less than a decade.
Adding in funding for the opposition in the Scottish assembly and Scots and Welsh special advisers the cost in 2005 was £16.07m - an increase of 430% in less than a decade.
Current funding of the two main parties
According to their 2005 accounts, the Conservatives raised £13.5m from donations, £2.5m from commercial activities and fundraising plus £4.5m in state grants. Less than £1m was raised from party members.
The Labour Party's accounts for 2005 show donations at £13.9m, income from members at £3.7m and affiliation fees (mainly from trade unions) at £8m. In addition, the party raised close to £5m from fundraising and commercial activities.
Labour's income from directly attributable state grants was far less at £440,000 as the government party does not benefit from Short and Cranbourne Money and other similar grants, though it does get some policy development money. Labour does however get a considerable party benefit from its state funded-special advisers.
As is now know, all of the three main parties have also benefited from large undeclared loans.
Where the money goes
There are three main elements of party spending:
This section deals primarily with central campaign spending.
According the parties' accounts, the running costs of the Conservative's central operations was £9m in 2005 (2004 - £8m).
The Labour Party appears to be more costly as its accounts for 2005 show a running cost of nearly £24m (2004 - £22.5m).
Party central campaign spending on general elections 2001/2005
Party spending in the 12 months before general elections rises rapidly - central campaign spending (as opposed to running costs) by all parties for the 2005 general election was £42.3m (£26.7m in 2001).
Of this £42.3m total, 84% was spent by the Conservatives and Labour.
Each of the two main parties spent around £18m on the 2005 campaign (the Lib Dems' total was £4.37m) - well up on 2001 (the 2001 figures were calculated on a different basis to 2005, but the best available figures do indicate a substantial increase in 2005) and close to the new legal spending limit (the national limit and the spending figures do not include spending by individual candidates, which is accounted for separately and is limited to around £11,000 per candidate - a total of £14m was spent on individual constituency campaigns in 2005).
Of their £18m central campaign spending, the Conservatives splashed out 46% of on advertising - mainly billboards. Labour spent 29% on advertising.
A further 25% of the Conservative total went on mailshots - compared to 15% for Labour. The market research and canvassing spend was 7% and 9% respectively.
In other words, 65.5%, or £23.6m out of £36m of spending by the two main parties during the 2005 general election went mainly on billboard advertising, telephone canvassing, highly-targeted mailshots and political consultants.
In 2005, the main parties massively increased their use of sophisticated databases and other direct-marketing techniques to deliver tailored messages to floating voters in marginal seats.
In previous elections, political strategists had identified and targeted key voter groups such as 'Mondeo man'. But increasingly, the use of telephone canvassing and electoral roll records, overlaid with data such as credit history, consumer-lifestyle surveys and purchasing habits purchased from commercial suppliers has allowed the parties to build voter databases in the key marginal seats.
In the first two months of 2005, the Conservative and Labour parties sent out more than double the volume of direct mail compared to the whole of 2004 (800,000 pieces of mail at a cost of nearly 63p per mailing). In the same two-month period, Labour exceeded the volume of mailings it sent in 2001 (source: Thomson Intermedia).
Underlying this is the fact that a relatively small percentage of voters in a limited number of seats swing elections. The parties have always known this, but now they are becoming more sophisticated about who these 'swing' voters are.
A great deal has been learned from the United States, where voter-targeting techniques such as the Republican's Voter Vault database software package have been developed. This software has greatly influenced Conservative campaigning, while Labour began using its Labour.contact database in a few constituencies in 2001 and rolled it out in 2005.
In 2005, the three main parties concentrated this direct-mail blitzkrieg on C2 voters - the skilled working class/upwardly-mobile lower-middle class groups such as policeman, nurses and people with skills.
They then refined the targeting, often using professional telephone canvassers to ask floating voters which issues concerned them. These voters were then relentlessly mailed on their favourite subjects.
However, many people question whether these techniques are really a replacement for volunteers wearing out shoe leather on doorsteps. Yale University professor Alan Gerber has conducted experiments on direct marketing in the US. His findings show that volunteers or heavily coached call centre staff making unrushed calls and database-directed face-to-face canvassing are more effective than advertising, mail or automated phone calls.
To some extent the main parties are the victims of their own science. Labour are having to rely more than more on high-tech solutions due to falling membership, while the Tories are suffering from an ageing group of volunteers. This becomes self-fulfilling as campaigning becomes more distant and people are less motivated to join and help the parties.
For the future, online campaigning is set to grow. During the 2004 US primaries, Howard Dean's online campaign attracted hordes of volunteers and raised more money than any Democratic presidential primary campaign in history.
In 2005, the Conservatives under Michael Howard also retained the services of Australian polling guru Lynton Crosby, who has been credited with helping Australian PM John Howard to four victories. Crosby charged the Conservatives £441,000 to do seven months work - 2.5% of their total campaign costs.
Crosby's technique has been called 'dog-whistle politics' - tailoring key messages to different segments of the electorate. His big idea for 2005 was the "Are you thinking what we're thinking?" slogan - which invited an all too obvious riposte from too many of the electorate. Under Crosby, the Tory campaign concentrated on right-wing issues of the sort on which the party had campaigned under William Hague in 2001.
Although the Conservative performance improved and they won 32 more seats in 2005, this owed more to Labour's unpopularity than the succes of the Tory campaign. The Conservative share of the vote only rose from 31.7% in 2001 to 32.4% in 2005 and their total vote increased only marginally from 8.36m 8.78m.
Overseas funding
A high level of state funding of political parties exists in a number of major democracies. However there is no evidence that this has reduced corruption - rather the opposite.
Germany has generous state funding, though this cannot exceed funds raised by the parties themselves. In all around £150m a year is paid to parties locally, nationally and to party research bodies. However, there is criticism in Germany that this has led to huge party bureaucracies which, along with the party list system, has divorced parties from voters.
Above all, state funding has not prevented massive corruption. Former Chancellor Helmut Kohl and French President Francois Mitterand were the Little and Large of the European project, both devoted to deepening EU integration.
Kohl, however, ran a huge slush fund from companies that needed political favours - including arms manufacturers. Mitterand ran a similar operation in France. When one needed a bit more cash, they called up one another for a sub, which was pumped through Elf Aquitaine, the French state owned oil company.
Kohl's secret account was run by "the postman", who channeled funds from a prominent arms dealer and other donors to Kohl's CDU party. When the scandal broke in 2000, around £3m was traced in secret donations, while it emerged that Mitterand had arranged £8m in payments through Elf. The actual figures are probably much larger, but the CDU destroyed many of the files and Kohl has always refused to give details of his backers.
France also has an extensive state-funding system for its political parties. Half of spending can be reclaimed by candidates receiving 5% or more of the vote up to set limits, though only one-third of spending can be reclaimed by presidential candidates. There are also other funding mechanisms. Apart from the Mitterand scandal, 604 French politicians were charged with corruption between 1994-2004, including former prime ministers and ministers.
The other major country with significant state funding is the United States, with matching funding for primary candidates and generous funding for presidential campaigns and conventions.
Italy used to have state funding, but in 1993 a referendum voted 90.3% against the system of state aid, which is now limited to £30m a year. However in Italy there are criticisms that rich individuals like Berlusconi can effectively buy power.
Sweden, Canada and Australia all run more limited state funding systems.
What is to be done?
Democracy is in trouble in Britain.
More state funding of political parties may help to free the parties from the influence of wealthy sponsors, be they individuals, businesses, trade unions or pressure groups. This is a genuine problem. But the experience of high levels of state funding in France, Germany and the United States is not encouraging.
More state funding might help politicians counter the power of the media. But the experience of increasing the resources devoted to the media by the main parties in recent years is also not encouraging.
More state funding would, however, not address the other problems and would exacerbate many.
As the parties rely more on polls, focus groups and take more note of the media, their policies tend to average out, making them increasingly indistinguishable. Listening is good. But by being too non-ideological, managerial, media and focus group driven, the parties may be falling down in their duty of leadership and telling hard truths. That is not an issue that will be solved by public funding. On the contrary, by increasing the power of the party machines and providing more resources for polling and focus groups, state funding is likely to make it worse.
What else would more state funding be spent on?
In 2005, the two main parties splashed out two-thirds of their £36m election campaign war chests on billboard ads, mailings and telephone canvassing. Much of the rest went on expensive political 'strategists' and media advisers.
The parties have funded these dubious and possibly counter-productive activities by placing themselves in the pockets of large donors and selling seats in our second chamber. If the parties want to continue to spend money in these ways, they should not be funded by the taxpayer to do so.
If, as has been suggested, individual donations were limited with the result that the parties raised less money overall, it would be better to ally this to further restrictions on national campaign spending to well below the limits introduced in 2001.
Such limits would beneficial if they resulted in less spending on billboards, mailings, telephone canvassing and polling.
Remember that national campaign spending is only part of the picture. In 2005, a further £14m was spent on constituency campaigns, most of which was raised locally by the parties. In addition, general elections also see free mailings and free party political broadcasts worth £68m.
Clearly plenty of campaign spending at local and national level would continue if further restrictions on donors without compensating state funding resulted in less outlay on billboards, mailings and cold calling.
Matched funding, often touted as a compromise solution because the state would fund the parties in proportion to what they raise themselves, or limited tax breaks for contributions are not much better. Both would still result in a further taxpayer subsidies for the parties to spend on largely unproductive activities. Matched funding and tax breaks are state funding by another name. However it seems almost certain that the self-interest of the main parties will result in matched funding being seen as one of the ways forward. If this is the case, it is essential that the maximum taxpayer subsidy is capped at no more than £250 per person.
In fact increased spending seems to have an inverse relation to turnout politics. It is arguable that the more the voters are treated as numbers by an ever more distant political class, the more they disengage.
If, however, further state aid was linked strictly to policy development - which some already is - it would tend to displace the huge amount of policy work undertaken by a number of institutes funded by a diverse range of people and organisations.
These bodies already do excellent work and some have close links with the parties. In other words, more policy funding would effectively nationalise the think tanks.
The ongoing year-on-year costs of running the main parties - as opposed to campaign costs - should also be affordable under the current system without further public subsidy. The main parties all already benefit form significant direct and indirect state funding and should be forced to look to other ways to augment their income - not least to increase the derisory income from their members.
Overall, there can be little doubt that more taxpayer funding for the parties would lead to increased numbers of political posts, creating a political bureaucracy and augmenting the professionalised political class - the politocracy - which many people feel has a negative impact on governance.
More state funding would also reduce the need for the parties to raise money from their members, which would further insulate them. It would take more power from elected MPs, who already feel that the growth in special advisers, the Number 10 machine and the party bureaucracies reduce their influence.
Much work has already been done to clean up the system since 1997, including the disclosure rules. The Labour government deserves credit for much of that. But more needs to be done:
This prescription would undoubtedly lead to less overall funding for the parties than they now enjoy. But replacing large donors' funds with state money would largely result in taxpayers funding billboards, cold calls, mailshots and political consultants, the very things which so annoy voters every five years or so.
A reduction in income might also force the political parties to become focused on raising funds though their own members, getting out on doorsteps and examining why they have lost the confidence of the British people. In short, it might return power to the people and their elected representatives.
Headlines
The political parties are already significantly subsidised by the taxpayer. Existing public funding ranges from £19.32m to £50m a year, depending on how you make the calculation