Rebalancing the economy for the long term

A transcript of a speech given by Deputy Prime Minister Nick Clegg.

This was published under the 2010 to 2015 Conservative and Liberal Democrat coalition government
The Rt Hon Nick Clegg

Thank you very much for the invitation to address your annual open meeting.

Christopher, you touched on a number of issues that are extremely important to the new Coalition Government: transparency, accountability.

I hope that in our Programme for Government you will see our commitment to all of these. To the sweeping reforms that I believe will make our politics more open and more legitimate.

That commitment should be understood in light of two tests the Government has set itself – two questions we are going to ask ourselves as we take decisions.

First: is this course of action in the long-term interest of the country?

Moving away from short-termist, headline driven government, to governing in a way that is much more sustainable, much more future-oriented.

Second: does this course of action disperse power, shifting it back to people?

Reversing the overcentralisation that, in recent years, has disempowered people while allowing Whitehall to micromanage their daily lives to an astonishing degree.

Given these tests, it should come as no surprise that we are placing a great emphasis on reforming our politics to break up the concentrations of power that currently weaken our democracy. And on tackling the big, fundamental constitutional changes that are long overdue.

I believe we have made a good start.

On Monday parliament debated a Bill to give people a say over their voting system in a referendum next May. Simultaneously equalizing constituency sizes so that where a person lives no longer determines the value of their vote.

Next week parliament will debate a Bill to introduce fixed term parliaments. Removing for the first time in our history the Prime Minister’s right to trigger a General Election on a whim. Ensuring instead that early dissolution is the sole right of parliament.

In the New Year we will produce draft legislation to complete he modernization of the House of Lords. Just one hundred years since Parliament first agreed that the Lords should be constituted on a popular basis.

And, from establishing a statutory register to ensure that the work of all lobbyists is fair and open. To creating a recall mechanism for MPs found guilty of serious wrong-doing. We are taking the action needed to give people a political system they can put their trust in, and that Britain can be proud of.

Today, I would like to focus on one of the most important elements of that package: reform of party funding. I know it’s not a particularly fashionable thing to say, but political parties need to raise money. They need to be able to campaign effectively to offer voters the choice that is the lifeblood of any democracy.

But the current rules by which funding is received and spent have got the balance wrong. They allow a system in which wealthy donors and vested interests are far too prevalent. That advantage is wholly unacceptable, and the perception of politicians in the pockets of their paymasters is deeply corrosive.

Until we introduce new rules that people can have confidence in, all of our attempts to reform our politics, no matter how bold or how successful, will inevitably fall short.

Every party has had it’s problems, that is true.

But we must now come together to clean up the system.

If we do not, there is only one thing we can be certain of: there will be more scandals.

That is why I am delighted that the Committee is embarking on a review of party funding.

Bringing new insights, expertise and, most importantly, independence to these already well-rehearsed debates. I very much look forward to reading those findings.

And I very much agree with Sir Christopher that the time to start that work is now, not when newspaper revelations have forced politicians into a corner.

This is not an exact science.

None of us have the precise answer, and getting this right will be a long and involved process.

The more voices in that, the better, and the Committee’s is one we will listen to extremely carefully.

As the government moves forward, we will not seek to reinvent the wheel.

Much progress was made during the Hayden Phillips cross-party talks and we will build on the consensus that already exists. Of course, that history helps us, but it does create some problems too.

Some people, understandably, will take some convincing that a lasting resolution is within reach.

If we couldn’t come to a lasting resolution back then, in 2007, when we had a deal on the table, how will we now?

I don’t accept that fatalism.

I believe – and the Prime Minister believes – that things are different now, for two principal reasons.

One: in this post-expenses scandal era, the association between money and politics has tested people’s trust in politics to its limits.

That is why during the election earlier this year, for the first time ever, each party campaigned on a platform of political reform – each with clear pledges to reform party funding.

None of us now has the luxury of walking away from the negotiating table – the voters will not accept it.

Two: coalition government presents new opportunities for compromise.

I don’t want to overstate this.

Anyone who has been in the chamber recently will see that our ya-boo traditions are still alive and well.

And there is perhaps no issue that fuels political tribalism as intensely as party funding.

Because, for each of us, it is intimately bound to our very survival.

But I do believe that coalition, by it’s nature, introduces a new style of government – consensual, collaborative, open. That has been our experience in these early months.

If we draw on that spirit that is growing within government, and apply it to the talks between the parties, I believe we will be better equipped to secure a lasting settlement.

So, how will we move forward?

The political reforms I described earlier are, if you like, the first wave of change – the voting system referendum, fair boundaries, Lords reform.

Party funding will be a key part of the second wave.

Certain reforms were introduced by the previous Government - from setting up the Electoral Commission to regulate party finance, to putting loans to parties on the same basis as donations after the “cash for peerages” allegations. They helped plug some of the worst loopholes.

But there are still no caps on donations and no sense that we need to limit the amount of money in the system.

And what is needed now is not a piecemeal approach to limiting the worst flaws in the system, but a comprehensive settlement. After next Spring, which I believe is when the CSPL intends to publish its findings, there will be a process of cross party consultation, and the government stands ready to take the outcome forward.

I do not, today, want to prejudge the outcome of that process.

But I will set out three principles that any settlement should reflect.

First, this must be a package – a package of reforms across the board.

It must be comprehensive: that will mean considering how much money people give to parties, including trade unions, and how much parties spend.

Trite as it may sound, the flow of money in and out of parties is at the heart of what we are talking about.

Sir Hayden Phillips, in his work on party funding, noted that spending by the three main parties increased by over a third between 1992 and 2005.

In fact national election spending rose sharply at each election since 1979, peaking at over £80 million in 1997.

It was this Committee that first identified, rightly, the need to prevent the development of a spending “arms race”.

Second, funding arrangements should encourage political parties to widen their financial support base.

Changes to the rules on donations will inevitably place a new onus on parties to look for a broader range of more modest, voluntary contributions.

It is simply not healthy to have political parties so totally dependent on a few generous sources.

So we will need to explore new ways of encouraging smaller donations, which in turn creates new opportunities for individuals to engage.

For example, one idea I have always been interested in looking at in greater detail is the suggestion by the Power Inquiry that funding could be introduced based on individual voter ‘vouchers’.

People would be able to tick a box on their general election ballot paper to allocate a donation to the party of their choice.

Perhaps, on closer inspection this idea won’t prove to be workable, but it’s one of a range of innovations we should now take the opportunity to look at more closely.

Finally, the new system must be transparent.

Ensuring people can see who is donating to political parties, and how much, is of course part of that.

But we also need to make sure people better understand how party funding works. Parties already receive a great deal of money from taxpayers, but most people don’t know this.

Taxpayers’ money is being provided to political parties in the absence of a wider debate about the arguments for and against this kind of support.

I hope that when the CSPL conduct their review they will look at how that process can be made more transparent, so that people know where their money is going.

As we develop a new system there are lessons to be learnt from our recent experiences.

The new expenses regime, which Sir Christopher spoke about, for example, is built on principles which are the right ones: independence, transparency, value for money.

But the transition has not been entirely smooth.

I know that IPSA are keen to respond to some of the problems that have emerged and they are taking steps to do so.

As we set about the equally important task of reforming party funding I also have no doubt we will confront a range of challenges too.

The devil, as always, will lie in the detail.

We will open up old debates; we will inevitably cover some old ground; there will be times that every party is tempted to retreat to the comfort of stalemate.

But it is only by working together that we can create a system that is fair to all of the us.

And, more importantly, fair to the people we represent.

As we take on this challenge the role the Committee will play will be enormously important.

So let me thank you in advance for what I have no doubt will be an exceptionally valuable contribution, in what is one of the most pressing matters in public life.

We look forward to working with you on this.

Thank you.

Published 9 September 2010