State funding of parties comes closer

Lord Falconer gave his tacit support to a system of state funding of political parties yesterday when he faced an inquiry over the loans for peerages affair.

The lord chancellor told a meeting of the constitutional affairs committee that there were real concerns about parties being in the "capture" of a few wealthy businessmen.

He also backed a system of capping of individual donations, something that both the Conservatives and the Liberal Democrats have called for.

However, he insisted the government would wait until former civil servant Hayden Phillips carried out his review into party funding before taking any decisions.

"The public fear of the capture of political parties by a few donors is a significant issue that affects public confidence," Lord Falconer told the committee of MPs.

"Obviously the worry is that if a small number of people contribute a large amount of money, that could lead to them having undue influence over the party. That is a very, very real issue that needs to be addressed."

He said state funding would ensure political parties had "sufficient funds" to operate but at the same time make clear they were "not dependent on a few large donors".

If that were to happen, he said that a cap on individual contributions to parties was "obviously" the next step.

The loans for peerage row began after the revelation that both Labour and the Tories had accepted loans instead of donations from contributors, some of whom went on to be nominated for a seat in the House of Lords.

While donations have to be made public, loans made on a commercial basis do not, prompting claims that parties were being less than honest.

The government has promised to legislate within this parliament to ensure all loans are made public, whatever their terms, and yesterday Lord Falconer said this should restore confidence in the system, adding that a total ban on political loans was not necessary.

He also rejected criticism about the £2 million loan to the Labour party made by science minister Lord Sainsbury – something Nigel Evans MP told the Commons yesterday was a "clear and ongoing conflict of interest" for the prime minister.

Tony Blair responded by insisting Lord Sainsbury "does a superb job" and said he was "proud" to have him in the government, and these comments were echoed by Lord Falconer last night.

"I understand the concern. I think it is absolutely clear he is there on his merits. Every minister should be made a minister on his or her merits," he said.

A second businessman linked to the loans for peerages row has resigned from his job. Andrew Rosenfield, who lent the Labour party £1 million, has quit as executive chairman of property company Minerva.

The resignation comes after Rod Aldridge, who lent the party £1 million, resigned as executive chairman of services company Capita last month. He said speculation about the loans was damaging the reputation of his firm.