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This note gives background to the main controversies around, and attempts to reform, political party funding since 1997.

Political parties contribute to the UK’s representative democracy but require income to fund their activities. Private funding of political parties is associated with the risk and perception of improper influence. Reform proposals have focused on a cap on donations and an increase in public funding. However, it has proven difficult for the parties to agree on the level of a cap on donations, and there is some resistance to increasing public funding whilst there are pressures on public spending.

The finances of British political parties were largely unregulated before the Labour government that came to power in 1997 passed the Political Parties, Elections and Referendums Act 2000 (PPERA). PPERA was based on the report on party funding by the Committee on Standards in Public Life published in 1998. It regulates the funding and spending of political parties, candidates and certain others, and created the Electoral Commission to monitor compliance.

During the Labour Governments in power between 1997 and 2010, party funding reviews were carried out by the Electoral Commission (2004), the Constitutional Affairs Select Committee (2006) and Sir Hayden Phillips (2007). PPERA was modified by the Electoral Administration Act 2006 that subjected loans to the same rules as donations, and the Political Parties and Elections Act 2009 that introduced new spending limits and altered donation reporting thresholds.

The Coalition Government in office since 2010 included a commitment to party funding reform in its coalition agreement. Reports on party funding were published by the Committee on Standards in Public Life (2011) and the Electoral Commission (2013). Cross-party talks broke down in 2013. The Transparency of Lobbying, Non-Party Campaigning and Trade Union Administration Act 2014 restricted the funding and spending of non-party campaigners during election periods.

The Conservative Government elected in 2015 reduced the public funding available to opposition parties. The Trade Union Bill 2015-16 introduced on 15 July 2016 includes provisions that could have implications for the funding the Labour Party receives from trade unions.

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