Submission to the Trade Union Bill committee: Impact of the bill

Will clauses 10 and 11 of the Trade Union Bill have an impact on the finances of political parties?

Clauses 10 and 11 of the Trade Union Bill will have a significant negative effect on the funding of the Labour Party, while leaving other parties unaffected. We estimate that Labour’s income from trade union donations will fall by around £6m a year.

Switching trade union political funds to an opt-in system will significantly reduce the numbers paying the political levy. At present, 90% of trade union members do not choose to opt out of paying the political fund. In Northern Ireland, where trade union members must opt in to paying union political funds, 30% of union members choose to opt in. We see no evidence to suggest that the proportion opting in will be higher than this level in the long term if the Bill is passed in the UK. In fact, since the system in Northern Ireland only requires members to opt in once, rather than every five years, the level in the UK is likely to be lower. The extremely short three month period which trade unions will have to secure opt-ins in writing means that this level is likely to be significantly lower in the first years of the new system.

This estimate of the numbers who will choose to opt in represents a two thirds reduction in the size of trade union political funds. We believe there will be a corresponding reduction in the level of trade union donations to Labour. On this estimate, the money available in the political funds of unions affiliated to Labour will fall from £22m (2014) to around £7m a year. Of the £22m raised in 2014, £10m was donated to Labour. We would expect this to fall to £3.3m, a reduction of over £6m a year.

Affiliated trade unions contribute to Labour both through individual trade unionists’ affiliation fees and through donations from political funds. Since the reforms agreed in 2014, there already exists an opt-in system for individual trade unionists to affiliate to Labour. However, since these reforms, the majority of trade union funding to Labour now comes through donations whose size is determined by trade union leadership rather than individual members. If the size of trade union political funds falls, affiliated trade unions will have to cut both their donations to Labour and the scale of their other political activities. These unions are unlikely to increase the proportion of their political funds that they give to Labour at the expense of their other political activities. We therefore expect the proportion of political funds donated to Labour to remain roughly constant.

If the two clauses will have such an impact, how would that relate to the recommendations of the CSPL report and/or party funding reform?

The reduction in trade union funding to Labour would dramatically shift the balance of party funding in the UK. In electoral terms, the principal beneficiary would be the Conservative Party, whose funding would be unaffected by the changes in the Bill. These changes would widen the funding gap between the two largest parties, with serious implications for the fairness of future elections. By handing one party a significant funding advantage, the changes to union funding would also reduce the incentives for parties to reach agreement on comprehensive party funding reform in the future. We believe there is a strong case for reforming trade union donations to Labour as part of a wider package of party funding reform, but proceeding with these changes on their own would worsen existing problems in UK political party finance. We therefore recommend that the government remove the political funding element of the Trade Union Bill and call on political parties to reopen cross-party talks on party funding.

The 2011 CSPL report on political party finance proposed reforms to reduce the influence of big donors - whether trade union, individual or corporate - on political parties. Clauses 10 and 11 overlap with some of the recommendations made in the report relating to trade unions. However, these recommendations were merely one component of a comprehensive package of reforms designed to reduce the influence of big donors to political parties. The report was very clear on this issue:

It is important that proposals are regarded as a package. Failure to resist the temptation to implement some parts, while rejecting others, would upset the balance we have sought to achieve. (CSPL 2011, 89)

Clauses 10 and 11 would reduce trade union funding to Labour while wealthy individual or corporate donors would be unaffected. This would hand the Conservative Party, who receive a much larger proportion of their donations from wealthy individuals and private companies, a considerable advantage during an election campaign. This one-sided approach to party funding reform is the antithesis of the principle of fairness which underpins the CSPL report.

Fairness: The system should be fair to all parties, as far as possible should have regard to their different histories and structures and should not unduly discriminate against particular candidates or parties. (CSPL 2011, 28)

The funds available to a party at an election campaign should reflect the breadth of its support in society, not the depth of its relationships with a handful of big donors. Free and fair elections require a level playing field for all parties. If these changes go ahead, the next election will be fought with rules that hobble one party’s finances before the campaign starts.

We also find the proposals run counter to the CSPL report’s principle of integrity. In the absence of wider party funding reform, these changes would encourage Labour to seek more large individual and corporate donations in order to make up the funding shortfall. This would increase the influence of big donors and the potential for policy capture.

If the Trade Union Bill is passed with Clauses 10 and 11 in their current form, we believe that agreement on comprehensive party funding reform will be less likely in the future. The changes to trade union funding will hand the Conservatives a significant funding advantage. They will have little incentive to compromise or reach agreement on changes that will reduce their advantage. If these changes go ahead, securing cross-party agreement on further party funding reforms will be like playing poker where one player has their cards face up. With these clauses, the government have succeeded at reopening the debate on party political finance. Support for party funding reform is higher than ever, with a recent poll for the Electoral Reform Society reporting 77% believing that big donors have too much influence over our political parties, and 57% supporting a publicly funded party funding system, up from 41% in 2014. This is the perfect opportunity to reexamine party funding as a whole.

We would warn against viewing Clauses 10 and 11 as a step towards the CSPL recommendations. The switch to an opt-in system for trade union political funds appears to implement one of the recommendations in the CSPL report. However, because the Trade Union Bill has not been explicitly designed as party funding legislation, Clause 10 and 11 have quite different effects to the system proposed by CSPL. If legislation were introduced to implement the remainder of the CSPL recommendations, there would need to be further changes to trade union political funds.

The aim of the opt-in system proposed in the CSPL report is to ensure that trade union donations represent an active choice on the part of individual trade union members to donate to a political party. If these conditions were met, trade union affiliations would be regarded as an aggregation of individual donations rather than a single large donation, thus avoiding the proposed £10,000 donation cap.

These conditions are not met by Clause 10 and 11 of the Bill. The 2014 reforms already ensure that individual affiliation fees are the result of an active choice on the part of the individual member to affiliate to Labour. However, the majority of trade union contributions come in the form of donations from political funds which are made at the discretion of affiliated trade union leadership. This would not change under the new opt-in system. Clauses 10 and 11 of the Bill do not give individual trade union members an opt-in on whether to donate to a political party, but an opt-in on whether to contribute to a political fund. The decision about how much of that political fund is donated would remain in the hands of union leaders. Changes to trade union funding of political parties are a vital element of party funding reform, but they must be explicitly designed with the aim of achieving transparency in donations.