As part of our joint review of the UK Constitution with the Institute for Government, Justin Fisher navigates the challenges of effectively regulating political finance in light of technological change, internationalism and the significant emergence of non-party actors.
Political finance in the UK was effectively unregulated until 2000 with the passing of the Political Parties, Elections and Referendums Act (PPERA). PPERA has been successful, with regulations having become broadly embedded. Yet, there are indications that the effective regulation of political finance may become more difficult to deliver because of technological change, internationalisation and the significant emergence of non-party actors.
Technological change – digital
Digital campaigning represents a relatively new challenge to political finance. Legislation has finally sought to catch up with the digital world with the introduction of digital imprints via the Elections Act 2022. What is more challenging is that the enforcement of digital imprints can only occur within the UK’s jurisdiction. With digital communications, the ability to transmit messages widely from outside national borders is far greater than other methods. It is entirely possible that a third-party campaign, which endorses a party and/or attacks another, could operate online from outside the UK without the consent or even the knowledge of the benefiting political or third party. Such campaigns would not be subject to regulation, since they would be based outside the UK, highlighting that the regulatory reach of any election law has limitations and that it is important to recognise what can and cannot be regulated.
Foreign money
Keeping foreign money out of domestic politics is a recognised issue in most democracies. In the UK, this was first legislated on by PPERA which introduced two key reforms: citizens were only permitted to make political donations if they were registered to vote in the UK and companies were only permitted to make donations if they were incorporated in the UK.
The continuing permissibility of company donations means that it may be difficult to definitively say what part of that donation is domestic and what is foreign. Many corporations operate across several borders and the meaningful differentiation between domestic and foreign money becomes near impossible. One solution may be to prohibit donations from institutions. But there are potential downsides. This would not only affect companies, but also trade unions. Trade union and company donations are important financially to political parties, so unless donations from individuals increased substantially (which is highly unlikely), parties would be left in significant financial trouble unless an alternative source of income, such as financial support from public funds, was available.
A further risk in terms of foreign money stems from citizens resident overseas. PPERA stipulated that British citizens resident overseas for up to 15 years were eligible to register to vote and therefore make donations. However, the risk was mitigated by the numbers actually registering. Before 2015, that figure never exceeded 35,000. However, it increased to 285,000 at the 2017 general election. This risk is amplified by the Elections Act 2022 which removes the 15-year limitation. The potential impact is significant. Were registration to be at the level of the 2017 general election, this would produce around 692,000 citizens registered to vote and donate from overseas.
Third parties
Perhaps the most difficult area to regulate in political finance is that of third parties – a person or organisation that campaigns in an election without themselves standing. Third-party activity has been regulated at the national level since PPERA but did not appear to be a huge problem until the 2016 referendum. This saw a significant rise in the spending of groups other than the main two campaigns and arguably rendered the spending limits in the referendum meaningless. The example from 2016 is such that groups other than the main campaigners had become alert to the possibility of higher spending limits in any referendum or election. This suggests that there may be a case for tighter restrictions on the volume of third-party activity to protect the primacy of those who stand for election and who are accountable to the electorate.
Discussion
One solution to these challenges may be much heavier regulation – barring any corporate donations, banning donations from citizens resident overseas and reducing the spending limits of third parties. But, over-regulation risks unreasonable restrictions on legitimate political activity, can create perverse incentives to judge actions solely on the basis of their legality and may result in a reduction of the credibility of other regulations through an inability to implement particular ones. Arguably, political finance legislation is more likely to be effective if there is an element of trust involved, based on a shared understanding of how elections should be conducted. Under these circumstances, the morality of actions is driven by this shared understanding rather than the strict interpretation of legality. Yet, trust will only work if all involved play by the rules and risks being discredited by actors such as third parties threatening the credibility of existing political rules by exploiting the campaigning avenues available to them in increasing numbers.
One solution, paradoxically, is lighter regulation in recognition that the application of regulations is increasingly difficult to accomplish. Transparency may become the principal form of party finance regulation, with the actions of parties or candidates being judged solely by public opinion. Yet, a reliance solely on transparency is more likely to deliver unsatisfactory outcomes if the purpose of party finance regulation is to help deliver free and fair elections. Public understanding of political finance is relatively limited and scrutiny would be effectively contracted out to often-partisan NGOs.
Yet none of these implies that the regulation of political finance is broken. The fundamental rules are still effective but cannot cover every eventuality. Small adjustments can be made to guard against these problems – perhaps a limitation on the ability to donate and reductions in third-party spending limits. But fundamentally, we all need to accept that no system is watertight.
Read guest paper: The regulation of political finance – choppier waters ahead?
The views and opinions expressed in this post are those of the author(s) and not necessarily those of the Bennett Institute for Public Policy.
