"A dodgy prime minister surrounded by dodgy donors.”
That was Ed Miliband’s charge against David Cameron at their latest cage fighting bout otherwise known as Prime Minister’s Questions. The Labour leader was trying to raise public alarm at the Conservative Party’s dependence on financial support from rich donors with the implicit accusation that they are buying political influence. The Prime Minister, in return, charged him with being in the pockets of the unions, who have their own policy agenda. Such attack and counter-attack is to be expected in the feverish pre-election period we have now entered. But is the fact that political parties take big donations from rich people something we should be seriously worried about?
This week’s spat came in the context of revelations that, for years, the British-based bank HSBC had been providing a means for rich people to dodge paying taxes through its Swiss private bank,. In many cases they were engaging in tax evasion, which is illegal. Yet it emerged that very few prosecutions were brought against them, despite the fact that our tax authorities, HMRC, knew a lot about what was going on. This has got those who run HMRC into pretty hot water.
But the political fallout is much greater. At a time when public spending is being cut and the state needs as much revenue as it can raise, the issue of rich people dodging taxes is a matter of acute political sensitivity. Indeed in the row that has ensued about tax dodging, the distinction between tax evasion (which is illegal) and tax avoidance (which is legal) has often been lost. Many rich people employ very highly-paid accountants to work out tax avoidance wheezes in order to reduce their tax bills, but although these are (usually) legal, their efforts can leave a very bad smell. Even George Osborne who, as a Tory chancellor, might be expected to justify legal avoidance against illegal evasion, has railed against ‘aggressive’ tax avoidance.
But this already highly sensitive issue becomes even more so when those rich people thought to be dodging their taxes are the very same people donating money to political parties. That was Mr Miliband’s accusation in the Commons on Wednesday. He claimed that the Tory Party had raised more than £5m from donors with accounts at HSBC’s Swiss private bank. He even seemed to level a serious charge against Lord Fink, who made his money in the hedge fund industry and became a treasurer of the Conservative Party. Lord Fink threatened to sue Mr Miliband for libel if he repeated the charge without the protection of parliamentary privilege Mr Miliband subsequently said that he hadn’t been thinking of Lord Fink when he talked about ‘dodgy donors’ and Lord Fink acknowledged that he had indeed engaged in (legal) tax avoidance – much like everyone else. So it now seems peace has been restored between them. But the issue remains a very real one.
For David Cameron, the spotlight on rich donors, whether they are tax dodgers or not, came at a bad time for another reason. On Monday he had attended his party’s ‘Black and White Ball’ at a posh hotel in London. The point of the ball was to raise £3m for the party’s election coffers from rich donors who paid between £500 a ticket and £15,000 a table to attend. Those who paid most got to sit next to cabinet ministers; less generous donors made do with junior ministers and skinflint donors had mere backbench MPs for company.
Tory-supporting celebrities such as the nightclub owner, Peter Stringfellow, turned up. But most of those attending were City financiers and figures from Mayfair’s hedge fund industry. The proportion of individual donations coming from this group has doubled in the last five years or so. Eight of the top twenty donors (who provide 35% of the party’s funding) came from among these financiers.
Much as the party may depend on such generous donors, it is also clear that the event itself is a source of embarrassment to the party leadership. What was once a black-tie and champagne affair has become a lounge suit and white wine occasion in order to soften the image of a party in thrall to fat cats . The ball is not referred to on the party’s website and no guest list is published.
But it is not just the Tories who take lots of money from rich individuals; so does Labour. Or at least, it did. When ‘New Labour’ was in power it received £20.7m from private donors in the period between 2005 and 2010. Figures such as Lord (David) Sainsbury, Lakshmi Mittal, the British-based Indian industrialist, and Sir Ronald Cohen, the private equity boss, provided £10m between them.
However, many of these rich individuals stopped giving money to the party when Ed Miliband became its leader. In the period since 2010 only one individual, John Mills, a veteran party member and former Camden councillor, has given more than £1m to the party and its total income from rich donors in that period has fallen to £8.7m. The party claims that it receives much of its income from less wealthy individuals (the threshold for disclosing donations is £7,500 per year); nonetheless, the proportion of its total income coming from the unions has risen from 61% to 72% over this period. This was the basis of David Cameron’s counter-charge that the Labour leader is in the pocket of the unions.
Does it matter that rich people give money to political parties? After all, if they want to ‘waste’ their money on a bunch of politicians (as some would see it), then that’s their business. But those who think it does matter do so because they worry that the donors are buying influence over policy.
To people who see it in these terms it is no coincidence that there should have been so many hedge fund bosses turning up at the Tories’ Black and White Ball. They note that hedge funds do very well out of what these critics regard as a highly lucrative and wholly unjustifiable loophole that allows hedge funds to avoid paying tax on their trading in UK shares. Eighteen years ago similar critics thought it was no coincidence that Tony Blair’s new government exempted Formula One from the ban on tobacco advertising after its boss, Bernie Ecclestone, had given Labour a donation of £1m.
In both cases, the party leaderships have vehemently denied any connection, but critics of a system in which political parties are, to a greater or lesser extent, dependent on rich donors do not see smoke without fire. If they are right to do so, then that system has to be called into question. But if parties are to function without the benefit of such donations (or, indeed, of trade union funding), then alternative sources of finance have to be found. And that probably means the taxpayer.
So how seriously should we take the issue of rich people giving money to political parties? Do you agree with Ed Miliband that David Cameron is a “dodgy prime minister surrounded by dodgy donors”? Do you think there is any significant difference between the parties on this matter? Do you believe that rich donors do buy influence or do you think the suspicion is exaggerated? Do you think there should be a limit on how much individuals can give? Do you think Labour’s funding by the unions is equally problematic? And what do you think of the idea that we should scrap the whole system of having political parties funded by those who might have an interest in influencing policy and have them funded by the taxpayer instead?
