The Tories have said there is "no possibility" of agreement on party funding while Labour refuses to put a cap on trade union donations.
Mr Herbert said Labour had no interest in creating a level playing field
Nick Herbert said ministers were driving a "coach and horses" through the principle of capping donations.
Justice Secretary Jack Straw accused the Tories of misunderstanding union fees and behaving in a partisan way.
Sir Hayden Phillips has been trying to get an agreement between the main parties on changing the funding system.
The Tories say trade union donations should be included within a £50,000 limit on donations from individuals and organisations.
Labour says they should be treated as a series of small donations from individuals and says it will not allow its historic link with the unions to be broken.
'Level playing field'
At Commons question time on Wednesday, Mr Herbert told Mr Straw: "There is no possibility of achieving consensus while union barons control affiliation fees.
"And by not counting £8m worth of donations you are driving a coach and horses through the principle of capping donations."
He accused the government of not having "the slightest interest of securing a level playing field" on party funding.
Mr Straw said Mr Herbert had "totally misunderstood" union funding - saying members could opt out of paying a political levy. He said each party had had to accept "quite significant compromises" and he still hoped to reach a consensus.
He added: "There has only ever been one party which has sought to act in a partisan way when it comes to party funding and that is the Conservative Party."
A review of political funding was launched in the midst of the furore over cash-for-honours and the revelation that parties received large undisclosed loans in the run-up to the 2005 election.
In July the man charged with getting cross-party agreement on funding reform, Sir Hayden Phillips, said attempts to do so had made "significant progress".
But Conservative leader David Cameron has said he will pull out of talks on reforming party funding, if Labour does not agree to a cap on donations from trade unions.