Political financing: Donations, loans and state funding

‘Political financing’ refers to all money that is raised and spent for political purposes.

Political financing has been formally regulated in the United Kingdom since the Corrupt and Illegal Practices (Prevention) Act 1883, which introduced spending limits for candidates during elections.

A more comprehensive system of regulation was created by the Political Parties, Elections and Referendums Act 2000 (PPERA). PPERA set rules on permissible donations and reporting obligations, and introduced spending limits for parties at elections.

Since PPERA, further legislation has amended the rules on political financing, including the Electoral Administration Act 2006, the Political Parties and Elections Act 2009 and the Elections Act 2022. In July 2025, the government announced that further reforms would be included in a new Elections Bill.

Why fund politics?

Many academics and commentators argue that political finance is essential for democracies to function. This is because it enables political parties to promote policies, communicate with voters and develop ideas.

However, political finance is also controversial due to the risk that donors may exert undue influence on politicians and political parties.

How is politics financed in the UK?

Political parties and candidates in the UK are financed by a combination of:

• donations and loans from individuals or institutions
• party membership fees
• direct and indirect state funding

Donations and loans

In the UK, most political financing comes from donations and loans.

Voluntarism

When political parties primarily rely on donations, loans and membership fees (as in the UK), it is known as ‘voluntarism’.

Supporters of voluntarism say that it protects citizens’ freedom to give money as they choose and avoids placing political parties under excessive state control via state funding.

Critics of voluntarism argue that political parties can become reliant on a small number of wealthy donors, which generates a suspicion (and risk) of undue influence.

UK political donation rules

UK political parties and candidates may only receive donations and loans from permissible sources. These include individuals on the electoral register, UK-registered companies, UK-registered trade unions and unincorporated associations. Rules on permissibility apply for donations above £500 for parties and above £50 for candidates.

Donations may be cash or non-cash (for example, providing office space). Donations over specific thresholds, which vary depending on the donor and the recipient, must be reported to the Electoral Commission. The Electoral Commission publishes quarterly donations data, as well as pre-poll donations reports every week in the lead up to an election.

Direct and indirect state funding

State funding represents subsidies given either directly to political parties or candidates or indirectly as ‘non-cash’ support. The UK provides limited state funding for political parties compared with most European democracies. However, schemes do exist which encompass both direct and indirect forms of state subsidy such as Short and Cranborne Money, policy development grants and free postal communication during some elections.

What are the global trends in political financing?

State funding has grown as a source of party income – particularly in Europe – since the late 1950s, largely because of declining membership and rising campaign costs.

According to the International Institute for Democracy and Electoral Assistance, 70% of countries use some form of direct state funding (though to varying degrees). Indirect funding is common, and includes free broadcast time, subsidised mailing and free meeting spaces.

Eligibility to receive state funding is usually based on the number of votes and/or seats won at prior elections. Allocation formulas vary: while they are often based on votes and/or seats won, they also sometimes include matching funds to encourage small donations, membership, or increased representation (through gender-targeted public funding, for example).

What are the effects of political financing?

Research finds that, generally, political parties with more money have a greater chance of electoral success.

Academics have argued that the social benefits of donating large amounts of money to politicians (in countries where, for example, donors are provided some preferential access to politicians) is an important motivation for political donors.

However, proving a direct link between donations and a policy outcome is difficult because any agreements to that end are likely to be confidential. There are some (contested) international studies which argue that business donors have their interests better represented in policy outcomes than the general public.

Public opinion in the UK tends to oppose large private political donations, yet also resists higher state funding. Recent studies have shown that support for state funding increases when framed as a means of reducing “sleaze”.

Some studies have suggested that state funding can reduce corruption under specific conditions, but the evidence is mixed. There is little evidence that state funding prevents new parties entering politics, and some argue that it helps newcomers.

What further political financing rules have been proposed in the UK?

Since 2000, when PPERA came into force, there have been several Acts of Parliament which have adjusted the rules around political financing. Further changes are likely to feature in the forthcoming Elections Bill, including tougher donation checks and higher fines to the Electoral Commission.

Major reviews have been conducted by the Electoral Commission (2004), the Constitutional Affairs Select Committee (2006), Sir Hayden Phillips (2006 to 2007), and the Committee on Standards in Public Life (2011 and 2021). However, repeated attempts to introduce annual caps on donations and expand state funding have failed.