The 1997 election campaign will be the most extravagant contest in real terms since the Corrupt and Illegal Practices Prevention Act in 1883 curtailed corruption and introduced limits on election expenditure. British campaigning may still be cheap compared to the US (where enormous sums are devoted to television advertising, which parties in Britain are not allowed to use), but its costs are rising. Spending in 1997 will not only exceed that of recent elections, it will also beat in real terms the most lavish Conservative efforts of the past in the 1929, 1935 and 1964 elections. And this ignores the millions to be spent by Sir James Goldsmith, the billionaire founder of the Referendum party. So how are the parties raising the money for this unpreced-ented level of expenditure?
Conservatives
The funding of the Conservative party is shrouded in secrecy. Conservative central office is exempt from the disclosure requirements of company law (unlike the Labour party), due to its peculiar legal status as the personal office of the party leader. Since 1993 more details of the party's finances have been published annually, but the source of much income remains unknown.
What is clear is that the Conservatives are now much better placed to fight an expensive campaign than seemed likely in the wake of the last election. By the end of the 1992-93 financial year, they had run up an overdraft of over £15m and a net current deficit of over ?19m. This was largely due to extravagant spending during 1987-91, exacer-bated by the demands of the 1992 campaign.
Since then the situation has improved thanks to staff cuts, tighter controls and a big increase in donations from individuals. As a result during 1993-96 the party achieved a cumulative revenue surplus of over £11m.
By the end of the 1995-96 financial year the bank overdraft was down to £2m, and since then it has been paid off altogether. While the primary cause is the recent surpluses, there is also an important secondary factor: central office has benefited from some very large interest free loans (which may become gifts) from cash rich local constituencies and party supporters, which it could set off against the overdraft. This has reduced the burden of interest payments, but it still leaves the party in debt. At the 1995-96 year end, interest free loans stood at ?8.6m. The net current deficit was ?7.5m.
Nevertheless, party managers have abandoned the penny pinching of the past few years, and much income will doubtless flow in as the election approaches. In the 1994 European elections Labour spent more on the campaign than the Conservatives did (£1,608,000 compared to ?1,437,000). This was the first time Labour had outspent the Tories on a nationwide election campaign, and Conservative party managers are determined it should not happen again.
Donations from individuals now constitute the bulk of Conservative funding. In 1992-93, individual gifts were less than those from companies-?3.5m compared to £4.3m. Since then personal donations have risen rapidly, while corporate payments have remained stable. Individual gifts provided around £8.5m in 1994-95, twice the level of corporate funding. In 1995-96 they grew to around £14m, two thirds of the party's income and three times company donations.
Little is known about the origins of this money outside the Treasurers' department in Conservative central office. It has been widely reported that the largest donation was a £4m loan, converted into a gift, from the recently knighted furniture magnate, Graham Kirkham. But in September 1996 Kirkham told the Daily Telegraph that his donations were not "anything at all like that sort of magnitude," and that the ?4m had in fact been a loan to the party from his son Michael which was repaid a few weeks later. Other important wealthy backers include Kirkham's fellow northern entrepreneurs, Paul Sykes and Eddie Healey, but the full extent of their largesse is similarly unclear.
However, reliable knowledge does become public about certain legacies, which can be substantial and benefit from the fact that bequests to political parties are exempt from inheritance tax. Two years ago the party received the entire £1.1m estate of John Jackson, a retired construction company owner from Bournemouth.
Some donations are made in the form of membership subscriptions for exclusive fundraising clubs, such as the Premier Club (minimum fee £10,000) and the Millennium Club (minimum ?2,500), which provide the opportunity of contact with senior ministers.
Personal donations include not only the big contributions from wealthy supporters, but also much smaller sums given in response to regular direct mail appeals. The Conservatives were slow to adopt this technique, handicapped by opposition from constituency associations which believed it would divert money away from local funds.
More information is available on company donations, since those over £200 must be revealed in annual reports. This shows that, while the overall total of corporate funding has recently been static at around £4-5m annually, its nature has been changing.
The party has been losing financial support from well known, blue chip companies. A recent survey of 289 large public companies by Pensions and Investments Research Consultants (PIRC) revealed that in 1995-96 only 43 made donations to the Conservatives, amounting to ?1,384,050; two years previously 59 companies gave a total of £1,578,800. The same pattern is confirmed by the larger surveys of around 5,000 companies conducted by the Labour Research Department (LRD). For 1995-96 LRD traced 133 company donations to the Conservatives amounting to ?2,546,000. This compares to donations from 309 companies totalling ?3,815,000 which were revealed for 1989-90. The downward trend has a variety of causes, including the increasing scrutiny of such donations and disillusion with the government's record.
Companies that have ceased making donations include United Biscuits, which had given the party over one million pounds since 1979, and Glaxo (now Glaxo Wellcome), Rank and Whitbread, each of which had given hundreds of thousands. Companies that have remained large and loyal donors include Hanson and P&O, which both continue to give £100,000 annually.
The party is now focusing on extracting money from smaller private companies, which tend to have fewer shareholders to worry about and less concern for their public image. One of the largest donations the Conservatives received in 1994-95 was that of ?114,046 from JJ Gallagher, a West Midlands construction firm, while in 1995-96 the party received £100,000 from the budget travel firm Trailfinders.
Some companies also assist in other ways that do not have to be declared in annual reports. This includes help in kind (for example by providing equipment or poster sites), advertising in programmes for fundraising dinners and making interest free loans.
Donations from constituency associations are now only a minor source of central party funding. In the 1970s they often constituted over a quarter of the national party's declared income. But by 1995-96 constituency payments totalled £765,000, less than 4 per cent of central party income.
The drop in constituency funding reflects poor morale, disenchantment with an unpopular government, and the consistent long-term weakening of the party at the grass roots since the 1950s. Furthermore in recent years local associations have become reluctant to lose money into what some regard as a central office black hole of bureaucratic inefficiency.
Labour
Labour's financial position has also improved since 1992, although it faces problems coping with its rising spending as the election approaches. In 1993 and 1994 it recorded small surpluses on its general fund for daily running costs, while building up its election fund. Greater expenditure meant a small general fund deficit in 1995, and virtually no growth in the election fund-thanks to the cost of its new media and campaign centre.
Over the past few years Labour has succeeded in diversifying its income base, which is important not only for financial reasons but also for the political motive of appearing less union-dominated. Nevertheless it still remains heavily dependent on the cash and resources of trade unions.
In 1995 Labour received ?6.8m in union affiliation fees, which in itself constituted 45 per cent of total party income. The party also received large donations from six unions, as well as from the umbrella body, Trades Unions for Labour. Union money is flowing into the party as the election approaches. In October 1996 the party announced it had received a £1m payment from the unions' Victory Appeal Fund.
Union resources are also deployed to benefit Labour in numerous, unquantifiable ways, beyond direct cash sums paid to party headquarters. These include the funding of research assistance for frontbenchers, the underwriting of key fundraising schemes, regional donations, local sponsorship and assistance with membership recruitment. During elections, additional help includes loans of offices, equipment and vehicles, the provision of printing and computing facilities, and vast amounts of staff time.
The bulk of union funding comes from the few largest affiliates. For example, the GMB puts its financial contribution to Labour in 1995 at around £2.1m, including its affiliation fee of £1.26m and a donation to the party's general election fund of ?500,000.
Tony Blair's pro-business stance has not yet attracted much corporate money. A few big companies have started to give to Labour-notably Pearson (£25,000 twice), Tate and Lyle (£7,500 twice) and Sun Life (£10,000), but at the same time all three have given the same or more to the Conservatives. Some less well known companies have also helped Labour. The largest corporate gift the party is known to have received so far was ?30,000 in 1995 from GLC Ltd, a small investment company, although Caparo, the private steel company of the recently ennobled Swraj Paul, has given greater sums than this to the Commons offices of leading Labour figures.
While unions continue to provide the financial backbone of the party, Labour does now also raise significant sums from other sources. Earlier this year it revealed a gift of £1m from the Political Animal Lobby (PAL), an offshoot of the International Fund for Animal Welfare. This was in recognition of Labour's commitment to allow a free vote on the banning of foxhunting. PAL has a history of funding all three parties, although never before to this extent.
The party has also managed to obtain a few enormous donations from some of the country's wealthiest individuals. Labour policy since 1995 is one of limited openness: it is to name all those individuals and organisations who give the party over £5,000 in one calendar year, but not necessarily to reveal the actual sums involved. And Labour's openness only covers party funds. It does not extend to revealing the names of the businessmen who donate to Tony Blair's private office expenses via the Labour Leader's Office Fund. The largest individual gift to the party publicised so far was £1m, from the late Matthew Harding, although it is not clear whether the entire sum was handed over before Harding's death in a helicopter accident. In 1996 Labour also announced a ?500,000 donation from the printing businessman, Bob Gavron. In 1995 the party's biggest personal gift was ?500,000 from the publisher Paul Hamlyn, a longstanding benefactor who gave a similar sum in 1996. Other businessmen who have made substantial donations include Alec Reed, Greg Dyke and Clive Hollick.
Less dramatic but important support comes from the 250 or so members of the 1000 Club, who give at least £1,000 annually, as well as those who spend hundreds of pounds to attend high profile dinners in the company of members of the Shadow Cabinet.
And Labour now also raises an important part of its cash in much smaller sums given by a large number of individuals. This is achieved through its programmes of direct mail, telephone fundraising and direct response press advertisements. At the end of 1995 the party had 55,000 "sponsors" who give by standing order or direct debit. Their donations had an annual value of £3.5m.
The creation and expansion of this supporter base has been facilitated by Labour's national membership scheme, which (unlike the Conservatives) means party headquarters knows the names, addresses and phone numbers of those most likely to provide financial support. As well as asking individuals for direct donations, Labour has successfully developed other national fundraising schemes such as its affinity credit card. It was the first party to issue one and this has now collected around £1m for the party.
Liberal Democrats
Unlike the two main parties the Liberal Democrats receive very little in the way of institutional funding. In 1995 this only consisted of ?15,000 from the Political Animal Lobby and £2,500 from Tate and Lyle. Most of the party's money comes from donations and subscriptions from individual members. The party has targeted prosperous Asian businessmen in the search for larger gifts. Unlike Labour it refuses to name substantial donors, although this policy is set to change after the election.
