What are the effects of political financing?

Samuel Power

Political financing refers to all money that is raised and spent for political purposes. It is often called “the cost of democracy”.

Does spending more money at an election increase your chances of winning an election?

Many academics agree that “money matters for electoral outcomes”.

However, there is also a consensus among academics that the effects of spending are mixed and contingent on the type of contest being fought.

It is also hard to disentangle cause from effect. For example, does spending increase your chances of winning, or do parties that are more popular raise and spend more money?

While much of the work examining the effects of spending on election outcomes has been conducted in the USA, a large-scale study of constituency spending in the four UK general elections held between 1997 and 2010 suggested that money was an important determinant of electoral success at candidate level in the UK:

…the more intensive a candidate’s local campaign, the better her/his performance. Thus, the better financed a party’s campaign across the constituencies, the more seats it gained.

What are the motivations behind political donations?

Through surveys of donors, we know that there tend to be three reasons for political giving. Donors are said to be ideologues, investors or intimates:

‘Ideologues’ give money because they support the policies of a party or candidate.
‘Investors’ give money to the party or candidate they think will best represent their own interests.
‘Intimates’ enjoy the social side of giving money and the access it may provide to lawmakers.

Do political donations buy policy favours?

It is hard to show a direct link between donations and specific policies. This is because paying money for a specific policy to be enacted would be clandestine by its very nature (if it happens at all).

A contested study from the USA argues that certain types of donor (namely, those representing business interests) “have substantial independent impacts on US government policy”, while on the other hand “average citizens and mass-based interest groups have little or no independent impact”.

When published, this study led to much debate from scholars interested in money in politics. Its methodology was subsequently critiqued, with one academic arguing that a further “analysis of the authors’ dataset reveals that average Americans have received their preferred policy outcome roughly as often as elites have”.

A summary of the donor influence study, its critiques and a rebuttal of the critiques from the study’s authors can be found on the Vox website.

Is state funding popular with the UK public?

In the UK, there is a lack of systematic data that measures the extent to which the public supports or opposes state funding for political parties. There is evidence that the UK public dislikes the current system of voluntary funding, by donors and trade unions, for example (in particular, the fact that the system enables large political donations). This evidence also shows that the public would generally support an annual upper limit on donations.

However, dislike for the current system does not translate into support for increased state funding to compensate political parties for the money that they would lose through a cap on donations. For example, in 2003, the Electoral Commission – in a survey question not since repeated – found that while 70% of respondents thought that private donors could buy political influence, only 6% supported further state funding.

Public opinion on these matters has been summarised by one political scientist as “Parties need money: but not mine, not from my taxes, and not from interest groups”.

Although the UK public has often been found to be resistant to the idea of increased state funding for political parties, a 2024 study found that “presenting citizens with the argument that state funding reduces the influence of big donors and minimizes ‘sleaze’ in democracies… significantly increased support for state funding”.

Does state funding lead to less corruption?

There is no clear answer as to whether state funding leads to less corruption.

A 2021 study which relied on levels of state subsidisation and perceptions based measures of corruption argued that state funding “mitigates corruption by reducing private money’s importance in politics and increasing the sanctions for corrupt behaviour”.

However, a 2024 replication study using the same data challenged the original study’s finding, and suggested that while “public funding reforms may help combat corruption under specific institutional conditions, its effects are not universally consistent”. This suggests a more cautious answer of ‘in some instances, maybe’, as opposed to ‘yes’.

Does state funding prevent new parties from entering politics?

One of the more prominent theories of political party organisation is the ‘cartel party thesis’. The theory posits that parties across much of the democratic world (but particularly in Europe) increasingly rely on state funding and, given that parties in power often set the eligibility and allocation criteria for receiving state funding, that this could lead to these criteria being fixed to prevent new parties from receiving money.

In practice, there is little evidence that state funding prevents new parties from entering politics. Indeed, some academics have even argued that the inverse is true, saying “state subsidies, seen as responsible for the cartel-like closure of party systems… can also be a springboard for party system challenge”.

Does increased transparency in a political finance regime increase public trust?

The overarching logic of transparency is often captured via a famous line – written in a 1913 Harper’s Weekly article – by United States Supreme Court Justice Louis Brandeis:

Publicity is justly commended as a remedy for social and industrial diseases. Sunlight is said to be the best of disinfectants; electric light the best policeman.

As it relates to political financing, academics have outlined that transparency performs two functions:

it makes unethical behaviour less likely by increasing oversight
it increases trust in politics and politicians by reducing instances of corruption and by giving citizens a better knowledge of the inner workings of a political finance regime

Academic work is less settled on whether transparency achieves these aims. In the UK, it has been argued that the increased transparency instituted via the Political Parties, Elections and Referendums Act 2000 was a success in that “genuine abuse of the system and loophole seeking remained comparatively modest”. However, it has also been argued that the 2000 act did not improve the reputation of the political financing system and may have had the opposite effect, causing “the public to either react to what they saw or have their worst fears confirmed”.

Others have suggested that transparency can have a positive effect on citizen trust, but to achieve this effect “information cannot sit idle in a website but rather [must] be delivered to citizens”.

Academic work therefore tends to highlight the importance of “active transparency” that brings data to the public, and includes clearer explanations of why decisions were made. It contrasts this with “fishbowl transparency”, which involves collating as much data as possible on a government website without always explaining its meaning.