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Last Updated: Friday, 20 July 2007, 06:42 GMT 07:42 UK
Q&A: Political party funding
Funding for political parties has been under scrutiny, with a government-commissioned inquiry recommending caps on spending and donations. Why was this necessary and what happens already?

Why is party political funding under scrutiny?

All parties need money to run campaigns, but during 2006 there were concerns that, at least with the three largest parties, they were too dependent on a handful of wealthy donors.

What has propelled the issue into the news?

It emerged in 2006 that to fund their 2005 General Election campaign, Labour was secretly loaned nearly 14m and the Conservatives 16m. The Liberal Democrats said they borrowed 850,000 from three backers. The review was ordered into the issue of funding at the height of the "cash for honours" furore which followed the loans' revelation.

How are parties funded?

All parties receive membership subs. But that is not enough to pay for modern campaigning - especially with the general decline in membership over recent decades. The Conservatives rely mainly on donations from individuals and companies. Labour also receives these, but a large chunk of its income comes from trade unions. Lib Dem coffers have also been boosted by large donations in recent years.

So, the UK doesn't have state funding for parties, then?

Actually, yes it does. Opposition parties receive money to pay for administration and other costs. Otherwise, the ruling party - with its access to the instruments of government, such as the civil service - would have an unfair advantage, it is argued. In the second quarter of 2006, the Tories were given 1.15m by the state and the Lib Dems got 456,000.

How open is the whole funding process?

Under rules drawn up by the current government, donations worth 5,000 or more to national parties have to be declared, as well as those worth 2,000 or more to local associations.

What about loans then?

A loophole in the rules used to mean that loans did not have to be declared. As a result of this becoming public knowledge that loophole has been closed.

What was the inquiry into party funding?

An inquiry, run by the former senior civil servant Sir Hayden Phillips, was set up in March 2006 to come up with proposals for reform. It reported a year later.

What did Sir Hayden recommend?

He recommended capping spending for political campaigns as well as capping individual donations. He also suggested increasing state funding by 25m a year, linked to public support - he proposed that eligible parties receive 50p each year for every vote cast for them in the most recent General Election and 25p for every vote in the most recent ballots for the Scottish Parliament, Welsh Assembly and European Parliament. He also recommended cutting spending by the largest parties between elections by 20m each;

And what do the parties themselves want?

Labour wants a small increase in state funding, stringent caps on spending and voluntary caps to be placed on donations by each party. The Tories are calling for a large increase in state funding for all parties with more than two Commons seats, a cap of 50,000 on all donations, the phasing out of corporate donations - including from trade unions, and tax relief for donations. The Lib Dems want limited state funding for parties, national caps on annual donations and a lower cap on general election spending.

So, are big changes definitely ahead?

Not necessarily. Sir Hayden's other option is "minimal change" to the current system. In his report he said UK politics has usually been "remarkably free of corruption and abuse". Realistically, there is little chance of any changes if the big parties do not agree. Sir Hayden is to chair talks with Labour, the Conservatives and the Liberal Democrats about changes, and has said there was "broad agreement" about most issues, but "obstacles" remained when it came to capping spending and donations.

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