Party Finance: Not a Broken System, but Some Reforms are Required

The rumoured donation of some £78 million to Reform UK by Elon Musk has recently sparked debate about party finance in the UK, with some demanding reform. Yet, this does not necessarily mean that the whole system requires an overhaul, not least because large elements of it continue to work well. In fact, the main legislation covering matters of party finance is the Political Parties, Elections and Referendums Act 2000 (PPERA), has successfully embedded many aspects of party finance regulatory reform, including transparency, rules to restrict who may or may not make a donation, and delivered election spending limits within our system. However, in recent years, three particular areas of concern have emerged: the risk of foreign money funding parties through company donations; the risk of money from outside the UK funding parties from UK citizens resident abroad; and the level of caps on election spending. This article considers reforms to each.

Company donations

The Musk situation has reignited recent discussions about company donations. At the outset, it’s worth making it clear that Musk cannot make the donation personally. It could only be made by one of his companies operating in the UK. The permissibility of any institutional donation means that there will always be a route for some foreign money to enter into domestic politics. There are four potential responses to this problem.

One option is to do nothing, but this risks similar issues recurring in the future. A second option follows the 2021 Committee on Standards in Public Life report, suggesting company donations be limited to profits generated in the UK. While reasonable, this would not prevent large donations from UK-profitable firms. A third option is to cap donation sizes—past reviews proposed limits of £10,000 or £50,000. This could reduce foreign influence but might significantly reduce party income, which may not be offset by other sources. A fourth option is to ban institutional donations entirely, as in Canada, where only individuals on the electoral register can donate. Such a move would have a simple appeal. Institutions do not have the vote, so it is not unreasonable to bar them from the possibility of influencing electoral outcomes.

However, such a ban would also affect trade unions and voluntary bodies, some of which—particularly unions—have historic ties with parties like Labour. Since company donations account for around 17% of all declared donations since 2001, their removal would create funding shortfalls. Unless individual giving surged, parties would face real financial difficulties. When Canada implemented a similar ban, it expanded state funding to make up the deficit, but UK governments have long resisted such moves. The result is a trade-off: reducing foreign influence risks undermining parties’ financial health. The most workable solution is restricting donations based on UK profits as a balance between desirability and practical implementation.

Overseas Donations

Any individual can donate to parties if they are on the electoral register. Since overseas voters have been entitled to register to vote in UK elections since 1985, the risk of money from outside the UK legally entering domestic politics has existed for some time. However, the risk was mitigated by the numbers registering to vote and donate. Before 2015, that figure never exceeded 35,000, but rose to 233,000 in 2019. Government estimates suggest 3.2–3.4 million eligible British citizens overseas, with 302,000 expected to register by 2029. If registration were at 2017 general election levels, it would reach 692,000.

One possible response to this issue would be to introduce greater transparency. At present, the Electoral Commission is not required to collect data on donations made by citizens based abroad. There is a case here for the published register of donors to indicate whether the citizen is resident overseas. Such a move would be in line with PPERA’s principles of transparency and would deliver the means by which reasonable levels of scrutiny could occur and ensure that those making declarable donations would build this knowledge of potential scrutiny into their decision-making processes. Greater transparency about donations made by citizens based abroad would be a useful solution to this issue and would be straightforward to implement without any significant cost.

Party spending limits

Before the 2024 election, the government finally addressed an overdue issue: inflation eroding party spending limits. When PPERA introduced limits in 2000, the formula allowed £30,000 per constituency contested—£18.9 million if a party stood in all 631 constituencies. But this figure had never been adjusted for inflation and, by 2023, its real value had fallen by 45%. The previous failure to adjust party spending limits for inflation also presented a challenge to a principle PPERA laid out—namely that parties and candidates should be the principal actors in elections. In 2019, there was a record number of registered non-party campaigners (sixty-one), together with a record level of expenditure—more than £6 million—compared with less than £2 million (at 2019 prices) in 2015. These levels of third-party activity had the potential to threaten the primacy of parties in electoral contests.

Although these were justifiable increases, they produced a significant step change in election expenditure limits, which had the potential to favour a party with the capacity to expand its fundraising. To avoid any potential partisan advantage in the future, it would make good sense for spending limits to be routinely reviewed and adjusted for inflation accordingly.

Conclusions

The regulation of party finance introduced by PPERA has been broadly effective, but there remains scope for improvement. Party financing is inherently complex. Fortunately, some reforms—such as restricting the source of institutional donations and increasing transparency around donations from overseas voters—are relatively easy to implement and would enhance the existing framework. There is also a case for greater proactivity. The sharp increase in expenditure limits before the 2024 general election was necessary only because successive governments had failed to adjust the limits for inflation. Going forward, a more balanced approach would be to review these limits regularly. The UK’s party finance system is far from broken, but modest, targeted reforms are needed to sustain its overall success.