How are political parties and politicians funded?

The income received by political parties and politicians comes from two principal sources: 

Commercial including loans, conferences, merchandise and, in the case of politicians, second jobs. 

Non-commercial including donations, membership fees, public grants and affiliation fees. 

Most forms of political financing are regulated in some way by the Political Parties, Elections and Referendums Act 2000 (PPERA). This includes controls on where the money can come from and public disclosure requirements for substantial contributions. There are similar rules for candidates standing for election, and those who could be trying to influence the outcome of polls but are not standing candidates (known as ‘non-party campaigners’ or ‘third party campaigns’). The Electoral Commission has the responsibility for monitoring and ensuring compliance with these rules. 

Under PPERA, political donations and loans over £500 must come from a ‘permissible’ source. The recipient – for example, a party, their members, or associated party organisations (known as ‘members associations’) – must check if a donation is permissible. Impermissible donations must be returned to the donor within 30 days of receipt. 

Permissible sources are: 

• individuals registered on a UK electoral register, including overseas electors and those leaving bequests
• most UK-registered companies
• Great Britain registered political parties
• UK-registered trade unions
• UK-registered building societies
• UK-registered limited liability partnerships (LLP) that carry on business in the UK and some types of trust.
• UK-registered friendly societies
• UK-based unincorporated associations that carry on business or other activities in the UK 

There are similar albeit slightly different rules in Northern Ireland. 

These rules are intended to ban foreign and anonymous donations over £500. There are, however, no restrictions on the amount that a donor can give. 

Although donations from private sources are the most well-known form of political party revenue, they are not the only one and sometimes not the largest. Each party has its own financial model reflecting their different histories, ideologies, and support base. 

For example, while over half of the Conservative Party’s income between 2014 and 2023 came from reportable private donations , for Labour it was less than a third. Conversely, almost a third of Labour’s revenue during the same period came from membership fees whereas the Conservatives raised less than 5 per cent of their financing this way.  Labour also receives about 10 per cent of its resources from affiliation fees paid by trade unions and various socialist societies, many of whose connection with the party go back to the early 1900s. 

Since Reform UK registered as a party in 2019, 99 per cent of its receipts came via large donations, with over half of these from just one source. 

Along with private sources, parties receive several types of cash and in-kind public funding, including: 

• Short Money: Supports opposition parties in the Commons. It is awarded to parties based on the number of seats and number of votes won at the most recent general election. To qualify, a party must have at least two MPs, or one MP and more than 150,000 votes. The House of Commons authorities are responsible for allocating and overseeing these funds.
• Cranborne Money: Supports opposition parties in the House of Lords. These are set through annual review and resolution, in line with inflation. The House of Lords authorities are responsible for allocating and overseeing these funds.
• Policy Development Grants: Supports parties to develop policies for their election manifestos. It is awarded to parties with two MPs or more who have taken the oath of allegiance. The Electoral Commission allocates and audits these funds.
• Party election broadcasts: Provides a free opportunity for registered political parties to present their views to the electorate before polling days. Broadcasters must provide airtime for qualifying parties – determined mostly by the proportion of seats they are contesting. OFCOM is responsible for policing these rules.
• Candidate mail outs at elections: Provides an opportunity for all candidates standing at parliamentary elections to engage with voters. All nominated candidates are entitled to either one free leaflet per elector or per household. The Royal Mail manages this service.
• Parliamentary pay and expenses: Manages the funding of MPs’ pay and expenses. The Independent Parliamentary Standards Authority (IPSA) has administered these funds since 2011.  

Looking at party accounts for 2023, Labour received just under £10 million in public grants, accounting for about one sixth of their total party income for that year. The Conservatives, as they were not in opposition and were not eligible for Short Money or Cranborne Money, received only £536,000 of public funds in total, accounting for 0.8 per cent of their overall income.  

Our research last year found that donations from private sources have ballooned in recent years, and that these contributions come largely from a small number of wealthy backers. 

In 2001 when records began, parties reported a total of £30.6 million in donations from private sources. Out of this £30.6 million, £17 million (55 per cent) came from nine individuals, companies and trade unions giving £1 million or more in a year. By 2023 this had increased to a total of £85 million, with £56.5 million (66 per cent) coming from just 19 mega donors, and one donor alone accounting for one in every eight pounds reported in donations during the year (see chart below). Notably, the surge in reported donations, particularly those from ‘mega donors’ giving £1 million or more, occurs around the time of major electoral events. 
 

This increasing reliance on a small number of very wealthy donors raises the risk that big donors can buy privileged access, potential influence, and peerages in politics. It also reinforces strong public perceptions that the rich have too much influence on policy decisions, and that Britain’s system of government is rigged to the advantage of the wealthy. 

To address the corrosive impact of big money on our democracy, Transparency International UK, IPPR, parliamentarians, former ministers, and other experts have called for an annual cap on how much any individual or organisation can donate. We support a cap on donations annually of £10,000, which is also recommended by the Committee on Standards in Public Life. The Committee settled on this figure for several reasons, including its ability to convince the public that the issue of big money in politics had been “adequately addressed” and that this figure would create a “reasonably level playing field” for political parties.  

While not a silver bullet and part of a package of reforms, caps are essential to address the growing distrust in politics, dampen the perception that a privileged few use money for access and undue influence, and tackle the threat of foreign interference in UK democracy. These reforms also have strong support from 60 per cent of respondents in recent polls. 

The Government also has a mandate to introduce change in this area, promising in their manifesto to strengthen controls on political donations. An upcoming Elections Bill would be the opportune time to do so. 

According to previous research by democracy watchdog International IDEA, 49 per cent of countries worldwide – including Canada, Finland, France, Italy, Japan, Mexico, and South Africa – place some kind of cap on donations to political parties. 

The size of these limits ranges from country to country, and so does the level of public funding for parties and their candidates. In France, the cap is €7,500 per year for donations to political parties and €4,500 for contributions to presidential campaigns.  Alongside this sit public subsidies. By contrast, Italy’s cap is €100,000 per person / company to political parties per year, with no direct public funding at all.   

In February this year, Australia introduced federal donations caps to political parties and candidates of $50,000 per donor per year, which will apply from July 2026. The Labor Party government introduced these reforms to counter the disproportionate effect of wealthy donors, such as one mining baron donating $117million in a single year.