The unique way the Labour Party is funded

Hayden Phillips’s interim report on party funding “sets out the main issues as they appear to me, and the choices which face the public and the political parties”. He discusses the issues raised by four broad scenarios (without, at this stage, a stated preference): minimal change, increased transparency plus spending controls, capping donations, and more state funding.

I want to engage with what he has to say about the donation cap option in relation to trade union funding of Labour (see Annex H). I assume that Labour wishes to keep its union links and to avoid the huge loss of funding that a cap might entail (far in excess of any losses to the Tories and Lib Dems combined, according to Phillips – see page 46). A cap would likely be at a far lower level than the large union affiliation payments, with major consequences for Labour’s finances; the number of £50,000 is being touted, most notably by the Tories.

Phillips notes that affiliation fees are treated as donations under current law, and therefore (page 52):

“If a cap on donations were introduced… and the existing definition of a ‘donation’ was used, then the Labour Party would have to change the basis for calculating affiliation fees where the affiliation fee worked out at more than the cap. Trade unions would not be able to pay an affiliation fee that was more than the cap in donations regardless of the number of members the trade union had.”

The tenor of Phillips’s remarks (on page 53) suggests that he is not impressed by arguments that such caps would unfairly force changes to the internal structures of the party as regards how it deals with affiliates:

“there is an alternative view that recognises that… the wider [union] relationship [with Labour] can continue even if regulatory measures such as a cap on donations mean the financial relationship changes. … The Labour Party could still determine the trade union’s influence according to the number of members contributing to the political fund. Trade union representation could still be determined on the same basis as at present. The only difference would be the amount the trade unions pay in affiliation fees.”

There’s a strong logic to this. The argument that union affiliation fees should be exempt from any cap simply because Labour does things this way and shouldn’t have to change has a mighty whiff of special pleading to it.

I think the only decent basis for arguing that such payments should be treated differently is that they are mere aggregates of many small donations made by individual members. (As Phillips says, “it would be open to argument whether the affiliation fee per member should be considered as the donation rather than the collective payment. The low level of the affiliation fee per member would not be affected by a cap on donations.”)

For this argument to have traction, the link between the individual’s making the payment and the Labour Party’s receiving it has to be as direct as possible. If this means procedural changes, then so be it.

How could this directness be enhanced? At present, union members contribute (if they wish) to a political fund, from which the union then pays its affiliation fee to Labour (and also pays for other political activities). The fee is calculated based on the size of the membership, and Labour then calculates things such as the union’s conference voting strength based on size. The key point is that the fee is paid by the union centrally, en bloc. This fact makes it harder to argue that it should be treated as a set of small individual fees.

A better set-up would be for individual members to make payments specifically for affiliation to Labour (if they choose to), via a union fund that exists purely to transfer small sums from individual members to Labour. Each payment would be the direct result of a named individual’s decision, which I think would make clear that the “donation” here is indeed “the affiliation fee per member”; the spectre of the union baron with the massive chequebook would be exorcised. The union could then run a separate fund for non-Labour political activities, on which it could make spending decisions centrally as it wishes.

Unison doesn’t quite do this, but operates on a principle that could be developed in this way: it has one general political fund, which is unaffiliated to any party and is used for campaigning activities generally, and one specific fund called Unison Labour Link, which handles the relationship with Labour. But as well as fencing off the Labour money, my proposal restricts the activity of the affiliation funds to transferring payments in the names of individual members.

Unions’ voting strengths within Labour could still easily enough be allocated based on the number of each union’s members who choose to affiliate and make payments under the union’s umbrella.

Phillips invites comments on the interim report by 20 November; his final report is due by the end of the year.