I think we all know the situation: while politicians, journalists and bloggers pour assiduously over the financial records of politicians and political parties for even the mere hint of an anomaly that might serve the basis of an allegation of sleaze against an opponent, the review process, under Hayden Phillips, which was supposed to lead to reform of the current system of party democracy, has foundered on the unwillingness of both the Labour and Conservative parties to give ground on what are clearly partisan and private interests. On Labour’s side, its their Trade Union funding that is regarded as not negotiable while the Conservatives have baulked at the suggestion of limits on local party spending outside of regulated election periods.

The whole process is going nowhere and even if does begin to make progress, again, the most likely outcome is a series of uncomfortable compromises that suit no one very well and an increase in state funding for the main political parties that will serve only to widen the already yawning chasm between the political classes and the people they, notionally, represent.

Writing in the Observer, last Sunday, Andrew Rawnsley provided a reasonably fair overview of some of the more recent developments, one peppered liberally with the now standard observation that, by and large, British politics is relatively free of outright corruption and its scandals, such as they are, are often minor and rather trivial; and yet in entreating the main parties to make concessions and support the proposals advanced by the Phillips Review, Rawnsley misses a rather more important and fundamental point; that it is the process by which the rules governing party funding are formulated and agreed that lies at the heart of, and creates, these problems.

To understand why it is worth reviewing, in the first instance, the terms of reference that were handed to Sir Hayden Phillips at the outset of his review:

To conduct a review of the funding of political parties.

In particular:

To examine the case for state funding of political parties including whether it should be enhanced in return for a cap on the size of donations;

To consider the transparency of political parties’ funding; and

To report to the Government by the end of December 2006 with recommendations for any changes in the current arrangements.

The “in particular’s” here reveal an interesting ordering of priorities in which a matter of clear interest to political parties, the ‘case for state funding’ is presented ahead of the question of the transparency of political parties’ funding, a matter of greater interest in terms of the ‘health’ or otherwise of Britain’s democracy.

Although Phillips is notionally independent of party interests, of any description, the process by which he is expected to deliver his proposals for reform is anything but independent and the final reform package, should one emerge, is contingent on securing the agreement of, at least, the two major political parties; Labour and Conservative.

In theory the expectation is that, first and foremost, all parties should seek to put the public interest in a healthy, fair and (relatively) corruption-free democratic process ahead of private and partisan party political interests in formulating the rules that govern their own conduct. Beyond that, and on the understanding that private interests will inevitably come into play in intra-party negotiation on the regulation of party funding, the assumption is that the generally adversarial nature of Britain’s political culture will serve to introduce the checks and balances necessary to ensure that these negotiations produce a set of rules and regulations that is both fair and equitable to political parties and which serve the public interest. In short, the process assumes that the private interests on both sides of the talks (three sides, if one include the Liberal Democrats) will cancel each other out, leaving behind an agreed framework that, even if less than ideal, will at least be workable and relatively free of bias towards any given party or set of private interests.

Such a process has two main flaws, each of which is evident in the current debate and in the events and circumstances that gave rise to it.

One, self-evidently, is that agreement may not be reached at all should the main parties take up entrenched positions in areas in which each is demanding concessions of the other(s) in return for arriving at a consensus on the rules and regulations that are to go forward to become law – this is, quite obviously, the position at which Phillips review currently stands.

The second flaw rests in the possibility of the main political parties forming a ‘cartel’ and working together to advance a mutual set of private interests, interests which act against the wider public interest, such as the omission, from PPERA, of any requirement to publically disclose commercial loans entered into by political parties- it being highly unlikely that a such a readily exploitable (and extensively exploited) loophole could arise in legislation entirely by accident/omission.

In any system of self-regulation, which is what we are dealing with here, consensus has a range of possible meanings; it can mean that all (main) parties have reached agreement on a regulatory framework that best serves the public interest to the exclusion of private interest or it can mean the opposition. In practice (and taking the cynical view) what it really means is, more often than not, is that they’ve reached agreement on a framework that provides for the maximum satisfaction of mutual private interests while, at the same time, conveying the most convincing impression of having acted primarily, if not solely, in the public interest.

It’s a highly utilitarian equation; the maximum political legitimacy (in terms of public perception) in return for the minimum possible accountability (in terms of transparency and pubic scrutiny).

From that observation it follows, logically, not only that any effective system of regulating the funding of political parties must be founded on the principle of maximising public scrutiny of party finances, insofar as this is consistent with the preservation of individual political and other liberty (as in striking a fair balance between disclosure of interests and rights to privacy and political autonomy), and therefore on transparency in the recording and reporting of party finances but that, in turn, the process by which regulations are drawn up to govern the funding of political parties must, equally, be subject to the maximum possible scrutiny and conducted in most open and transparent manner possible. This is a situation in which other methods of mitigating inherent conflicts of interest either cannot be used; they cannot be removed outright nor may politicians, as members of the legislature, recuse themselves from the enactment of regulations governing their own conduct, and a frank disclosure of where mutual party interests lie is, to say the least, highly unlikely as such a disclosure would strip the process of any semblance of legitimacy. Maximising external scrutiny and, therefore, transparency is the only viable option both in terms of ensuring that politicians operate honestly both in devising the regulations under which they will operate and in adhering to those regulations once enacted, a view that certainly appears to be endorsed by the European Union in the forward to its 2003 publication, ‘Financing Political Parties and Election Campaigns: Guidelines‘ (pp5, PDF 624kb)

Scandals, extensively reported in the media and underpinned by judicial investigation, have awakened the public opinion to the problem of illicit party financing and its relation to corruption. Such scandals have not diminished the importance of political parties as pillars of representative democracy, but they have made it evident that clear rules and transparent accounts are the key to restoring or preserving citizens’ trust in parties and politicians.

However, while reading through the interim report of the Phillips Review, I happened across what, to me, seems a rather curious anomaly in Phillips’ argument, one that raises an interesting question as to exactly how the review may have been influenced (or even directed) by the main parties in regards to the scope of its consideration of transparency in regards to party funding.

Phillips’ report contains two specific references to the EU’s guidelines of party/campaign financing. One is an innocuous looking reference to the book’s citation of the Electoral Commission as possessing ‘some of the widest ranging powers of any electoral regulator around the world available to it to investigate and enforce the law relating to political party finances’, which Phillips, not a little curiously, follows by posing the following question:

Whether these powers are the right ones is an important regulatory issue.

Mmm…. Curiouser and curiouser.

The second reference is to be found in this passage (after the word impropriety), in which Phillips sets out what he see as the disadvantages of greater transparency in the disclosure and reporting of party finances

Evidence from other jurisdictions suggests that greater transparency can result in public confidence decreasing, greater disclosure may prompt more stories in the media alleging impropriety. While deterring wrongdoing and uncovering it when it does occur are the major benefits of greater transparency there is a danger that there may be unrealistic expectations that allegations of abuse will be removed. Further rules could suggest there is something fundamentally wrong with our system when this is not actually the case.

This would be all well and good if anything in the content EU’s guidelines actually said any of those things or argued any of those points, which the guidelines (and supporting arguments) don’t.

The only references in the guidelines to the effect of party funding ‘scandals’ impacting on public confidence in democracy and the political system are the passage, from the foreword, quoted a little earlier and this reference to failings in the regulatory system in the Ukraine:

In Ukraine, for example, spending limits have proved in practice to be a fiction, as they have been established at unrealistically low levels, which has encouraged parties to bypass legal regulations by creating large numbers of small front organisations. The legal framework has not only failed to prevent a political finance arms race but has also made it difficult to assess the real levels of expenditure and has thus undermined transparency of political finance. More generally, it has undermined public confidence in the whole system of political finance.

In both instances, what is cited as having a damaging effect on public trust in politics is, in part, a lack of transparency of political finance and not that the introduction of measures to increase transparency have created unrealistic public expectations as to the removal of allegations of abuse, prompted more allegations of impropriety in the media and, contrary to all logic and expectation, had the effect of damaging rather than bolstering confidence in the political process.

This is all rather curious given that Phillips, prior to making this particular observation, lays out an eminently reasonable if, in places, debatable (in terms of practicality and administrative overheads) package of potential enhancements in reporting requirements:

For donations over a certain amount, further information about the donor could be made publicly available listing the donor’s financial, commercial or other interests. This could be similar in its coverage to the information required in the House of Commons Register of Members’ Interests.

Corporate donors or individual donors holding senior positions in companies could be required to declare any government contracts the company has or is seeking.

The frequency of reporting could be increased to allow “real time” scrutiny by the public.

The transparency of trade union political funds could be increased. In addition to the information they are required by law to publish and distribute to members on the balance of the political fund, they could also be required to publish a breakdown of how the political fund was spent.

Donations from unincorporated associations (i.e. organisations not registered as companies) could be made more transparent. They might be required to disclose their sources of income and the identity of their directors.

All companies, whether public or private, could be required to reveal any donations or loans made to political parties in their annual accounts.

Before going on to hit the nail squarely on the head in setting out the advantages of increased transparency:

Increased transparency would help public scrutiny become more effective. The requirement for further information about donors giving large sums may make giving sizeable donations less attractive. It concentrates on the root cause of concern over party funding, that is the perception that donors are trying to buy influence. Rather than relying on the media to investigate possible conflicts of interest, more information would be available for all to come to their own conclusions.

Transparency as opposed to a cap on donations would still allow individuals to spend their money as they choose. It avoids using a financial mechanism to change the behaviour of political parties and is more in keeping with the voluntary tradition of political parties…

Transparency may be seen as a way the public impose their own views on what is acceptable. It may therefore be more flexible to specific circumstances.

Exactly.

Greater transparency enables the voter to reach their own conclusions on the extent to which political parties may be influenced by particular private interests (and the funding they derive from those interests), take a view on the desirability (or otherwise) of those interests and respond accordingly via the ballot box. Actual regulation of party funding is, consequently, undertaken by means of a primarily democratic rather than a bureaucratic process, give or take legislation covering the permissible/impermissible status of certain types of donor.

The impression one gets from the (now) obvious juxtaposition of a clear and lucid case for greater transparency in party financing against an equally obvious misrepresentation of the content of the EU’s guidelines is one in which there is an unstated addendum to his terms of reference to the effect that the outcome of his deliberations on transparency must amount only to ‘this far and no further’.

In short, it would appear that Phillips has been given the verdict in advance, insofar as its likely that he was told by (at least) the Conservative and Labour parties that neither would agree to increased transparency in the disclosure of their sources of funding – particularly, one would think, in relation to making it easier to tie donations from companies and unincorporated associations back to their individual sources and the extent to which funding for political parties is derived from companies who bid for, and obtain, government contracts – and has been left to construct his best possible case in support of that verdict without disclosing, or at least making obvious, the extent to which the independence of his review of party funding has been compromised (and by whom, of course).

Whether you prefer to call it a ‘hose job’ or take the more colourful line of regarding the public as having been “Sir Humphrey’d”, the bottom line is any further increases in transparency in political party funding, over and above recent changes relating to the reporting of loans, were, if not never on the agenda, then at least very rapidly (and quietly) ruled out by the main parties without scope for genuine public debate.

This is the first in a series of articles reviewing a number of issues related to party funding, which are intended to lead up to the publication of a set of alternative proposals for reform, backed up with evidence and supporting arguments, to those put forward by the Phillips review and/or the main political parties. The next article will outline the key issues and (attempt to) underpin the debate in political theory, specifically principles derived from Rawls’ ‘A Theory of Justice‘.

About the author
'Unity' is a regular contributor to Liberal Conspiracy. He also blogs at Ministry of Truth.
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