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Financing UK Democracy: Are we heading for a crisis?

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Financing UK Democracy: Are we heading for a crisis?

In 2000, the reporting of political donations was made mandatory in the UK. More than 20 years on, political donations are on the rise, particularly from individual givers. This could have big consequences for the fairness of UK politics, as Colin Green explains.

Traditionally, donations to UK political parties are seen as relatively unimportant to the democratic process, especially when compared to the US. In our recent researchLink opens in a new window, we explore the size and frequency of political donations over the last 20 years since the Political Parties, Elections and Referendums Act (PPERA, 2000) made reporting of political donations mandatory. We find there has been an explosion in donations to political parties – particularly over the last decade and especially from individuals – that has disproportionately benefited the Conservative Party.

The introduction of the PPERA was a response to a range of concerns over the sway of outside interests on political affairs, including, for instance, the cash for questions scandal in 1994. Amongst other things, it banned foreign donations, capped expenditure at national elections and introduced mandatory reporting of political donations.

Early data after the law was introduced showed that political parties in the UK received only £40 million from just under 2000 donations. As a comparison, the Democratic and Republican parties in the US raised $900 million in 2002 alone.

This data seemed to confirm the long-held view that political donations for influence were very much an American phenomenon of little concern in the UK. However, we find that the subsequent two decades have witnessed dramatic increases in UK donations, and this is having a big impact how the democratic process works.

We find that party donations have almost trebled over the last twenty years. By 2019, political donations had increased to £118 million, a remarkable increase. And this increase has come almost exclusively from individual and company donors. In fact, in 2019, individual donors made up approximately 60% of total donations.

The problem with this rise in donations is that there has been one main beneficiary: the Conservative party. While this in part reflects their place as the party in power over the last decade, they have also experienced a general increase in donations in relation to other parties. Their donation ‘advantage’ increased dramatically following Jeremy Corbyn’s appointment to the Labour leadership: in 2019, the Tory party received £34 million more than the Labour party in donations.

The rise in donations we document is also problematic because of the type of donors offering money. While it is hard to make generalisations about who donors are, we do document the growth of a particular group of ‘super-donors’ who donate more than £100,000 in a given year. There were less than 20 of these in 2001. By 2019, there were 104. The growth in donations, therefore, is being driven by a relatively small group of individuals donating more, and more often. Remarkably, only one of these super-donors donated to the Labour Party between 2018 and 2019.

These patterns are creating a growing imbalance in political resources in the UK. It is well recognised that parties in opposition find it more difficult to raise donations and political resources in general. This led to the introduction of so-called ‘Short Money’ in 1975, a fund that aimed to provide financial assistance to parties in opposition. We find that over the first 15 years of the 2000s Short Money did its job. Financial assistance to opposition parties was on a scale broadly in line with the advantage gained from being the sitting government. Over the last five years, however, this is simply no longer true. Short Money is becoming irrelevant.

The growth in political donations, from a concentration of individual donors offering large sums, points to an increasing opportunity for unelected private individuals to wield substantial influence over the UK’s political process.

Colin Green is Professor of Economics at the Norwegian University of Science and Technology

Discover More

Read the research: Draca, M., Green, C. and Homroy, S. (2022) Financing UK Democracy: A Stocktake of 20 Years of Political Donations DisclosureLink opens in a new window, CAGE working paper (no. 642)

Press Release: Almost half of UK political donations come from private wealthy 'super-donors', new research findsLink opens in a new window