Reforming party funding by stealth and compromise may have longer-term consequences

Since the 2015 general election the government has introduced two measures –proposals relating to trade union political funds and cuts to Short money – that have the potential to affect the funding of at least some political parties. Justin Fisher argues that reforms such as these that have an asymmetric impact on parties could have longer-term consequences by causing a future government to exact ‘revenge’. That would do little for the prospects of reaching consensus on the vexed question of party finance reform.


(Credit: alf.melin, CC by SA 2.0)

The phrase ‘stop-go’ has become a useful means by which one can characterise Britain’s approach to party finance reform since 2000, when the wide ranging Political Parties, Elections and Referendums Act  (PPERA) was passed. Despite PPERA, the ‘problem’ of British party finance has refused to go away and, in the relatively short period since its introduction in 2001, there have been two subsequent government sponsored inquiries, both of which have recommended significant further reform but have failed to see their proposals implemented. The result is that Britain has developed a stop-go approach to reform, whereby reviews are entered into with reforming zeal, only for the ensuing proposals to be shelved by a failure of the main political parties to reach agreement. However, since the 2015 election two measures have been introduced which have the potential to affect the funding of at least some parties. In both cases the final proposals are likely to be somewhat less radical than was originally envisaged but could nonetheless have significant short- and longer-term consequences.

The Trade Union Bill

The election of the Conservative majority government in May 2015 very quickly signalled that reforms related to party funding would be attempted, not as a comprehensive attempt at reform, but with possibly far reaching consequences for some parties. In July 2015, a Trade Union Bill was presented, which included a clause requiring trade unions with a political fund to operate a ‘contracting-in’ system rather than a ‘contracting-out’ system. This had been a Conservative Party manifesto commitment, but went to the heart of the Labour Party’s relationship with the trade unions, following the Trade Union Act 1913. This established that for trade unions to engage in political activity, they must create a separate political fund. This covered all political activity – not just that with the Labour Party – and trade union members were required to actively ‘contract-out’ if they wanted to avoid paying this modest additional fee. The 1913 Act laid the ground rules for an important aspect of Labour funding for much of the next 100 years. Political activity through the Labour Party would be expressed collectively through a union’s decision to affiliate to the party.

This has faced challenges in the past. In the aftermath of the General Strike, the then Conservative government sought revenge on the unions by changing the law through the Trade Disputes and Trade Unions Act 1927, such that trade union members must ‘contract-in’ – that is, make the decision to pay into the fund rather than opt out. The result was quite predictable – around a quarter fewer trade unionists opted in to the political levy, though the impact on Labour’s finances was mitigated in part by unions raising the affiliation fee for those who continued to pay into the political fund. Soon after the end of the war, however, Labour restored the practice of ‘contracting-out’ that has remained in place until today.

The government’s majority in the Commons meant that this aspect of the bill passed through the Commons relatively unscathed. However, it experienced trouble in the House of Lords on its second reading in January 2016. As a result, the Lords established a select committee to examine clauses 10 and 11 of the bill (clause 10 refers to the proposal to introduce ‘contacting-in’). The House of Lords Select Committee on Trade Union Political Funds and Political Party Funding was established at the end of January 2016 and reported a month later. A significant question was how substantial the impact on the income of the Labour Party would be. The historical example following the 1927 act was clear, but many of those who gave evidence claimed the impact could be greater this time. Equally, the government claimed that significant falls were not inevitable. The committee was evidently less persuaded by the government’s case and concluded that the re-introduction of ‘contracting-in’ could have a ‘sizeable negative effect’ on the number of union members participating in political funds and therefore on the income of the Labour Party.

The outcome was a series of proposals which significantly challenged the government’s original intentions, whilst recognising that the government had a democratic mandate to introduce some form of ‘contracting-in’ for trade union political funds. The committee was unanimous on several aspects related to the introduction and operation of any such change, including a recommendation for longer transition periods. However, there was division on the principal matter of the ultimate introduction of ‘contracting-in’. Some members supported its introduction for all members, but recommended a longer transition period for existing members compared with new ones. The majority of the committee, however, proposed that ‘contracting-in’ should only be considered as part of wider cross-party discussions in respect of party funding reform. On 16 March, the Lords subsequently voted in favour of a motion to restrict changes to ‘contracting-in’ to new union members. If the government accepts this change, the impact of Labour finances will be significantly lessened in the short to medium term. However, much depends on whether the Commons is minded to force through the changes such that they ultimately also apply to existing union members after a suitable transition period. Were that to be the case, the impact on Labour’s finances would be felt rather sooner, particularly as there are no current plans to examine party finance more broadly.

Short money

The second reform relates to Short money. Introduced in 1975 and named after the then leader of the House, Edward Short, this is a form of ring-fenced public funding of opposition parties to assist their work in parliament. In the 2015 Autumn Statement, the Chancellor proposed reducing Short money allocations by 19 per cent and freezing them for the remainder of this parliament. The reason given was that parties must face cuts just as government services have done. However, by definition Short money affects a number of parties, but not all. It is only available to those parties taking their seats in parliament, and, critically, is only available to opposition parties. Following questions in the House from Labour and DUP members, the Leader of the House announced that there would be discussions with affected parties, and in March Chris Grayling presented a written statement to the Commons, detailing a much lower reduction of around five per cent in real terms. This compromise has now been accepted.

Such a cut will now affect the finances of all opposition parties. The original proposal did not include cuts to the Representative money scheme, which applies to parties who do not take up their seats in the House of Commons. However, the compromise agreement extended to a reduction to this fund, though no mention was made of Cranborne money – public funds used to support the work of opposition parties in the House of Lords. Again, the changes to party funding are not applied to all parties, though the five per cent cut is, of course, significantly less than the original proposals.

Longer-term consequences?

What unites both of these measures are two things. First, the impact on parties is asymmetric. While the measures on ‘contracting-in’ are not directly related to party funds – they are principally about participation in trade union political funds – it is only Labour’s finances that will be affected. Similarly, changes to Short money only affect opposition parties. Secondly, both arguably represent solutions to problems that are not high on the political agenda. Unlike some aspects of the Trade Union Bill, such as requirements in respect of taking strike action, the issue of ‘contracting-out’ has not shown itself to be a particular problem. A considerable number of trade union members already exercise the right to contract-out of the political fund, so the case for changing the procedure in isolation and outside of a broader examination of party funding is not especially strong. Equally, while recognising that public spending cuts need to be applied across a variety of areas, there has been no clamour to cut the relatively modest sums distributed through Short money.

Ultimately, however, the impact of these reforms may be longer-term and affect more parties. In the case of Labour, any change to ‘contracting-in’ will impact significantly upon the party’s income base. The only variable will be the extent to which the new arrangements apply only to new members or the length of any transition period. But for party finance reform more generally, the asymmetric effects of these changes are such that a future Labour or Labour-led government may exact some form of ‘revenge’, either though excessively partisan measures or through a root and branch reform of party finance regardless of any opposition from the Conservative Party. This will leave the vexed question of party finance reform open for a lot longer and with reduced prospects for consensus as a result.

This post originally appeared on The Constitution Unit blog and is reposted with permission. It represents the views of the authors and not those of Democratic Audit UK or the LSE. Please read our comments policy before posting.

Justin Fisher is Professor of Political Science and Head of the Department of Politics, History and the Brunel Law School at Brunel University London. He is a Constitution Unit Fellow.

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