Monday, 19 May 2014

How Ed Miliband’s Changes to the Labour Party Could Break the Stop-Go Cycle on Party Finance Reform

Justin Fisher reflects upon Ed Miliband's changes to the Labour Party in terms of finance reform.

In the 1950s and 1960s, it was argued that British economic management was characterised by ‘stop-go economics’. This entailed expansion and contraction of the economy in order to try and control inflation and maintain full employment. It was a deliberate policy, but over time, this kind of approach was held up to be a contributory cause of Britain’s post war economic and political problems. Economic policy is not the subject of this blog, but the phrase ‘stop-go’ has become a useful means by which one can characterize 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 enquiries, both of which have recommended significant further reform. 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. Yet Ed Miliband’s internal reforms of the Labour Party, passed recently at a special conference, could well mean that the ‘go button’ in party finance reform is not only pressed again, but held down. To understand why this may occur, it’s worth recapping Britain’s stop-go approach in the fourteen years since PPERA.

PPERA was, it should be stressed, a very wide ranging piece of reform. Prior to its introduction, British party finance was barely regulated at all. PPERA represented a sea change and introduced a number of important changes, including the regular public declaration of donations, a ban on foreign donations, limits on national campaign spending, limits on ‘third party’ election spending (spending by groups not contesting elections), and the establishment of the Electoral Commission to oversee the whole thing. But despite its breadth, the problems of party finance refused to go away. Transparency did not deter large donors and parties began to exploit some loopholes in the regulations. This culminated in the ‘loans for peerages’ episode, which led to a root and branch examination of party finance, led by Sir Hayden Phillips. Phillips reported in 2007 and recommended donation caps, enhanced state funding of parties, and reduced campaign expenditure limits. The ‘go button‘ of reform had been pressed. But it was to be followed by the ‘stop button’. First, the proposals were delayed by significant party disagreements. The Conservatives objected to proposals to regulate constituency campaigning more strongly, while Labour objected to trade union affiliation payments being regarded as being akin to any other donation (and therefore subject to a cap) rather than a collective contribution from affiliated members. Payments by members in affiliated unions to support political activity were made automatically unless they individually made a decision to ‘contract out’. Phillips argued that these arrangements would need to change if trade union payments were to be regarded differently from other donations. Second, the Labour government kept the ‘stop button’ firmly pressed down in its legislative response to Phillips – the Political Parties & Elections Act 2009, which ignored most of Phillips’ recommendations and made only very minor changes to party finance regulation.

After the 2010 election, the ‘go button’ on party finance reform was again pressed. The Deputy Prime Minister commissioned the Committee on Standards in Public Life (CSPL) to once again conduct a full review of party finance. The Committee reported in 2011 and like the Phillips review, recommended caps on donations, enhanced state funding and reduced campaign expenditure limits. But this review went further. As with the Phillips report, the question of donation caps drew strong criticism from those who felt that a cap on trade union affiliation payments would threaten the Labour-union link. The report proposed therefore that for unions not to be caught by such cap, they should demonstrate that they were in fact making a collection of individual donations by requiring trade unionists to both ‘contract in’ to the political levy and then make a positive decision that some of that levy should be paid to Labour. This was radical stuff – even Margaret Thatcher’s government had shied away from recommending ‘contracting in’ at the height its trade union reform programme.
Yet, the ‘stop button’ was pressed very quickly - in fact, on the day of the report’s publication. Speaking for the Conservatives as the party’s then Chair, Baroness Warsi announced that "the public will simply not accept a plan to hand over almost £100m of taxpayers' money to politicians". And, Nick Clegg – a previous champion of radical reform who had commissioned the report - distanced himself from the report’s conclusions very rapidly, saying “the government believes that the case cannot be made for greater state funding of political parties at a time when budgets are being squeezed and economic recovery remains the highest priority.” Labour too, notably failed to support the report. All-party talks were attempted to seek to strike some kind of deal, but they explicitly excluded the possibility of an extension of state funding and drew to a close in the Spring of 2013.

All of which might suggest that we are firmly in a ‘stop period’ of party finance reform – two attempts at reform have led to two failures. But arguably, Miliband’s reforms may be a game-changer and lead not only to the ‘go button’ being pressed, but this time, held down. To understand this, it is worth going back to Labour’s opposition to both the Phillips and CSPL reports. Both were of the view that unless there were changes in the financial arrangements for affiliated unions, it would be impossible to make the case that trade union payments to Labour should be treated any differently from other donations in respect of any caps. However, Labour (or at least powerful elements within the party) could not support either’s recommendations as they were fundamentally opposed to any challenge to the collective nature of trade union financial support. So as long as that resistance was there, it was unlikely that any wide-ranging reform would be achieved unless it was forced through against Labour’s will.
But, in the wake of the row over candidate selection on Falkirk, Ed Miliband made proposals which effectively endorsed the radical proposals made by the Committee on Standards in Public life in respect of members of affiliated trade unions. Not only would members now have to ‘contract in’ to the political levy, they would also have to consent to a proportion being paid to Labour. Critically, these reforms were approved by the party in the Spring of 2014. Most attention at the time was paid to Labour’s longer term relations with trade unions, but the implications of the decision go much deeper. In effect, the principal stumbling block to party finance reform from Labour’s perspective has been removed. Should donation caps be proposed again, Labour will be able to accept them because they can genuinely classify trade union affiliation payments as a collection of individual payments made positively by members. And, Labour will also have a significant upper hand in future discussions about reform. It has made significant changes, which will enable reform to take place. So, objections to reforms from other parties will seem much more difficult to justify.

But more than that alone needs to change if a future government is to achieve significant reform. Enhancing state funding is always going to be difficult to achieve. And as long as conduct in party finance is not unduly inappropriate, there is likely to remain a preference amongst decision-makers to stick with voluntary funding as the path of least resistance. However, there are other reasons to suggest that party finance reform may be more likely. First, next year’s general election may produce a different government – possibly a Labour minority or a Labour-Liberal Democrat coalition. With both parties more reform-minded in this area, then change is possible, especially with Labour’s principal objection to reform now removed. Second, existing rules may become increasingly difficult to implement. PPERA sought to ban foreign donations. But as the ownership and trading of companies becomes increasingly international, it becomes progressively more difficult to define a British corporate donation. So if governments remain committed to excluding foreign money from British party politics, the logical step may be to ban corporate donations altogether. Were that to occur, the prospect of reform, which would include state funding, could become more likely as a significant source of voluntary founding would no longer be available. Third, it may be that there is a genuine scandal in party finance on a par with MPs’ expenses. Were that to occur it would certainly trigger a root and branch review. And with Labour’s main objection to reform in the way of donation caps no longer an issue, the likelihood of the ‘go button’ being held down would be that much greater. Ed Miliband’s principal legacy may therefore be breaking the stop-go cycle in British attempts at reforming party finance.

Justin Fisher
Brunel University London

This blog post first appeared on the Political Studies Association Insight Blog here. 

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