Peter Cruddas Resignation Highlights Party Funding Dilemma In British Politics

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David Cameron said before the last election that lobbying and paying for access to the heart of government was "the next big scandal waiting to happen". It seems that scandal has now finally broken, and it's his own reputation that's being dragged through the mud.

But when Cameron was talking about lobbying, he couldn't have envisaged his own senior party officials allegedly offering access to Number 10 in exchange for donations to the Tory party. The PM was more concerned about the third party "hired guns" who arrange lunches and meetings with MPs and ministers on behalf of their clients.

The government is engaged in a consultation on regulating the lobbying industry with a proposed compulsory register, something which has been criticised by trade bodies representing lobbyists. There's also a row looming because the coalition would love to include trade unions on that register, compelling Labour to reveal how often it meets union chiefs.

This row is much less about lobbying than it is about the nature of party funding, a problem which crops up again and again. It engulfed Tony Blair's government in 2006, when it was alleged that loans to the Labour party were taken on the understanding that those lending the money would get peerages and other honours. Nobody was charged in connection with the lengthy investigation following the row, but it left a smear on Blair which tarnished the end of his premiership.

The new wave of allegations surrounding the now former Tory co-treasurer Peter Cruddas look, on the face of it, just as severe and will lead to calls for a similar investigation. But it comes after the constant suggestion that political parties have inappropriate relationships with those who fund them.

PETER CRUDDAS RESIGNATION - FULL COVERAGE

For the Tories there is the feeding frenzy in the media every time the Electoral Commission publishes its quarterly reports on political party funding. The list of financiers is displayed on the Commission's website, their backgrounds are probed and the media ponders what their motives might be in funding the Tories. Similarly Labour come under fire for being dictated to by the unions, without whom the party would be immediately bankrupt.

And while the Lib Dems talk a nice line about being above the fray on party funding, one of their largest donors was convicted in connection with a £40m fraud, and the party has come under pressure to somehow pay back the £2.4m it received from Michael Brown, cash believed to be stolen from the victims of a multi-million pound scam.

In November last year the independent Committee on Standards In Public life published a report which called for a cap of £10,000 on individual donations to political parties.

The committee's chairman, Sir Christopher Kelly, concluded that the only way to prevent the sleaze allegations cropping up again and again was for the parties to be funded directly by the taxpayer.

The political parties all paid lip-service to Sir Christopher Kelly's report, but since then have done nothing to implement it. They can claim with a degree of accuracy that taxpayers don't want to see their money channeled into political campaigning. But the parties have another agenda. Implementing the Kelly report would make it a lot harder for billionaires to make the kinds of donations to the Tories seen at present, and Labour's relationship with the unions - who almost entirely bankroll the party - would fundamentally change.

For Labour, currently around £8m in debt and running at an annual loss of £1.7m, such a reform would be financially devastating.

It could well be that the Peter Cruddas allegations will force the parties' hands and encourage them to implement the Kelly report. There are no good outcomes - taxpayers will loathe the idea of bankrolling politicians even more than they do already. But the current system seems so prone to undermining public confidence in British politics with the drip-drip of sleaze allegations, the history of which will be recounted in the press in the days to come.

The elephant in the room for all the parties is their own diminishing power and influence. People just don't join political parties any more, so they lack the cash which used to come from ordinary members' annual subscriptions. They've had to go cap in hand to other people for the money they need to function, and the consequences of that generate stories like the Peter Cruddas affair.

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