Why public finance of political parties is justified The "cash for access" story that broke in the UK over the past week is one in a long list of scandals. These breed cynicism. That turns people away from politics and increases the risk of capture by special interests. The result is a downward spiral in legitimacy. This latest scandal is that Peter Cruddas, Conservative party treasurer until this week, promised potential donors access to policy makers, including prime minister David Cameron, and even influence on policy. Mr Cameron has since had to reveal the names of donors invited to dinner at official residences. If this were an isolated event, it would be a storm in a Westminster teacup. It is not. Desperate for money, parties have engaged in dubious behaviour - or behaviour that looks dubious - to attract funds. The resulting loss of trust is costly. Against this background, many believe that more public funding, along with stronger control on spending, is the answer. The latest official recommendation on these lines came last November from the committee on standards in public life, chaired by Sir Christopher Kelly.* It recommended, among other things, a ceiling of £10,000 on individual donations, a shift to an "opt in" system for individual donations via trade unions and a cut of 15 per cent in permitted campaign spending. The committee also recommended that today's assistance should be "supplemented by the addition of a new form of public support paid to every party with two or more representatives in the Westminister parliament or the devolved legislatures. The public funding should depend on the number of votes secured in the previous election, at the rate of around £3 a vote in Westminster elections and £1.50 a vote in devolved and European elections. How good is the argument for such interference in people's freedom to spend their money as they choose? The answers would have to be: the effective functioning of the state is a public good; in a democracy, it depends on a legitimate political process; and political parties are indispensable for turning aspirations into government, particularly in parliamentary systems. In sum, as the report argues, "political parties provide a public good." Voluntary action will always underprovide such goods, because of the likelihood - indeed, certainty - of freeriding. Moreover, as politics have become less passionate, membership of parties has collapsed. This leaves parties yet more exposed to vested interests. Today, the danger is plutocracy - the ability of a small number of people or economic interests to bend the political process to their will. If the electorate comes to believe that politics is a racket, why should they care about it? A decision to move towards greater public funding has big risks. The journalist Sir Simon Jenkins told the committee that "the moment a democratic organisation loses not just its commitment to but its dependence on its members it begins to atrophy. That is what has happened to political parties . . . But it is so central to democracy that if these parties lose touch with their members by no longer depending on them for money, they will cease being what I call active political parties. They will become like European parties, which are just adjuncts of the people in or out of government. This has force. But parties actually depend on donations, not on membership fees: between 2001 and 2010, 64 per cent of the income of the Conservative party came from donations and just 3 per cent from memberships; for Labour, it was 61 per cent from donations and 13 per cent from membership fees. Given this dependence on donations, many large, the question is: what are the donors buying? Another objection to more public funding is that the rich, being few, need to counterbalance the power of the many. That line of argument appeals to libertarians. If opponents of public funding believe this, let them argue openly for the right to purchase the political parties. My response is that the principle of equality in the political arena is justified, in part, by the need to counter the power of the wealthy. No perfect system exists. What is needed is to strike a better balance between excessive dependence on big donors, on the one hand, and excessive dependence on the state, on the other. Any sensible person will realise that having parties depend on large donations that cause scandals is a mistake. That makes the case for a cap, combined with extra public funding, powerful. Obviously, such a cap needs be fair to all parties and so take into account the role of trade unions in the Labour party. It is no less crucial for a close connection to remain between the efforts of the parties to raise money and the public support they receive. For this reason, it would be far better, in my view, to match the funding parties receive from capped donations than to make the public support depend on the number of votes they receive. Reform is needed. But it must be done carefully if it is not to fail. Political party finance, November 2011, www.public-standards.org.uk