Political parties' reliance on "mega-donors" raises questions about alleged rewards for their funding in peerages and honours, an official sleaze watchdog said amid a cronyism row engulfing David Cameron.
The former prime minister's resignation honours list includes rewards for personal aides, political allies and Tory donors and has been branded by his ex-policy guru Steve Hilton as the symptom of a "corrupt and decaying democracy".
As the row over the list rumbled on, the Committee on Standards in Public Life published its latest study of political spending and funding.
Its report warned: "The main source of concern lies in the manner in which the parties derive their income.
"The principal source of the problem is low (and, in the case of the Conservatives, rapidly declining) party membership."
It said "major challenges" include a "reliance on mega-donors".
"This, in turn, raises questions of alleged rewards for these donors in the form of peerages and other public honours, privileged access, and of influence on policy," the watchdog said.
"These are areas of frequent speculation but inadequate solid research."
The report notes that the waters are muddied because many major donors proposed for public honours have also performed public services or made notable charitable contributions.
"Thus a simple correlation between political contributions made and honours received is dangerous and also may be unfounded and defamatory," it said.
The most damaging effect of reliance on a few major donors is that "it acts as a lazy short-cut for party leaders who are thereby able to devote less time and attention to the essential democratic function of generating support from party members and supporters", the committee said.
The privileged access perceived to be granted to big donors and the gilded social functions they are invited to by parties also came in for criticism.
"Social events which party leaders feel the need to hold with potential mega-donors gives an image of undesirable entitlement and extravagant lifestyle by the successful few," it said.
The report warned that public money given to politicians to work for their electors is being funnelled into "backdoor" funding for parties to get incumbents re-elected
Additionally, political money is being moved into "relatively unregulated" channels of influence like pressure groups, NGOs and think tanks.
These can serve as "offshore islands" of political parties, the committee said.
In 2011, the watchdog called for an extra £23 million a year of taxpayers' money to be used to fund political parties as part of an effort to clean up the system and remove the influence of ''big money''.
It said the extra state cash would allow a £10,000 cap imposed on individual donations and restrictions on trade union funds.
But noting that political agreement could not be reached over its proposals, the committee has now recommended a "limited package of reforms designed to limit large donations and to encourage small ones".
The committee also called for a study of the effectiveness of existing political finance laws and their enforcement.
A Conservative Party spokeswoman said: "The numerous inter-party funding talks over the last decade have failed to reach any consensus - they were too focused on complex and controversial structural changes.
"Neither is there any public demand for more state funding of political parties.
"During the Trade Union Bill, the Conservative Party suggested reforms to promote small-scale fundraising that would command broad support, rather than trying and failing to achieve an all-or-nothing, 'big bang' solution."