INSIDE OUT - It was a jolly lunch and Britain's newest newspaper proprietor was of a mind to make a generous donation to the Labour party, especially since Labour ministers had obligingly waved through his acquisition of the Express Newspaper group's titl

by ANDREW NEIL, publisher of The Business and The Scotsman
Last Updated: 31 Aug 2010

It was a jolly lunch and Britain's newest newspaper proprietor was of a mind to make a generous donation to the Labour party, especially since Labour ministers had obligingly waved through his acquisition of the Express Newspaper group's titles.

'Would pounds 100,000 be acceptable?' Richard Desmond asked of his influential guests, Margaret McDonagh, then general secretary of the Labour party, and Lord Alli, a Labour fundraiser with close links to Tony Blair, through the haze of a large Cuban cigar.

That would do very nicely, McDonagh and Alli replied gratefully. 'Fine,' said Desmond. 'The cheque will be in the post next week.' His two guests looked at each other nervously.

'Actually,' McDonagh hesitated, 'is there any chance we could have it now?'

Desmond was nonplussed. But, never one to miss a theatrical moment, he pulled out a company cheque book (Northern & Shell) and signed a cheque to the Labour party with a flourish and a drag of his cigar. McDonagh went from lunch to bank it in Labour's account.

The reason for the rush was simple: the lunch took place on 15 February 2001, the day before the deadline after which all political donations above pounds 5,000 had to be registered with the Electoral Commission and made public.

McDonagh and Alli were desperate for Desmond to make his donation in time to beat the deadline so that it would not become public knowledge until well after the general election in June 2001. Labour didn't want to go into the campaign explaining why it had just taken cash from the publisher of pornographic, top-shelf magazines.

The indignity of depending for party funds on people like Desmond has encouraged senior Labour figures to push the case for state funding of political parties. New Labour is proud to be less dependent on trade unions for money, but courting business people for money has its own problems.

Almost every big donation has brought accusations of cash-for-favours in its wake. Labour had to return pounds 1 million to Bernie Ecclestone after it was revealed that his Formula One business had won a delay in the banning of tobacco sponsorship. An Indian metals magnate, Lakshmi Mittal, who donated pounds 125,000 to Labour, was helped by the Foreign Office with the purchase of a Romanian steel mill. In the wake of the 11 September attacks, a contract for smallpox vaccine went to the company (PowderJect) of a major Labour donor (Paul Drayson).

In none of these cases was the link between cash and favours established. But cumulatively they created a stink that did not impress suspicious voters. Senior Labour figures decided that the answer was state funding of political parties.

But using taxpayers' money to finance parties is even less popular with voters than parties taking donations from pornographers or Indian steel tycoons. Public opinion had to be softened up. A carefully co-ordinated campaign was mounted, with Blairite think tanks encouraged to publish pamphlets in favour of state funding. Robin Cook, Leader of the House of Commons, opined that cash from the state was the only source not open to 'misconstruction'. David Blunkett, the Home Secretary, said state funding was 'inevitable'. John Prescott, the deputy prime minister, and Charles Clarke, Labour's party chairman, also waded in.

A year on and Labour still has a problem: a poll this summer for the BBC showed that the public was as hostile as ever to the idea of their taxes being used to fund political parties.

This explains why Blair, forever with an eye on the polls and focus groups, has given only tentative support to the idea, saying that the issue is 'complex' and would require 'cross-party consensus'.

Now the prime minister faces another setback. The unions still account for 50% of Labour's funds and they are not fans of state funding - they know it would diminish their influence in the party. At a time when the unions are demanding more left-wing government policies to suit their own agenda, they are determined to enhance it.

Blair would love to get shot of union funding altogether and he hates raising money from big business as well. State funding would offer an escape. But with public opinion, the unions and the Tories ranged against him, his hands are tied. Meanwhile Labour, already pounds 6 million in debt, falls deeper into the red.

The voters don't like the parties being bankrolled by the unions or big business any more than they fancy their taxes being used for political purposes. But they no longer join political parties to provide the mass membership fees that are the healthiest, most democratic way to finance party political activity, preferring instead to join the National Trust or Greenpeace.

Until he can slip in state funding under cover of darkness one night, when we are all looking elsewhere, Blair looks like being between a rock (pushy union bosses) and a hard place (rich, sometimes dodgy, business people) for the foreseeable future.

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