Vouchers: a third way for financing political parties

You got your public funding in my private donations! No, you got your private donations in my public funding!

The debate around financing of political parties is caught up between two alternatives, each of which possess seemingly intractable problems, but a third way might be surfacing in the US.

On the one hand, the status quo – of uncapped donations – has terrible consequences. It leads to capture by interest groups (stereotypically Labour by the unions and the Conservatives by big business, and like many stereotypes, there is an element of truth), is anti-democratic (contrary to what the US Supreme Court proclaims, money is not speech, yet if you have more money than I do, it's not hard to imagine which of us gets more say in policy) and has ended up in outright corruption (witness, amongst other things, "I'm like a cab for hire", "premier league" donors, or cash for honours).

Unfortunately, the major alternative model has its own problems. State funding of political parties runs the risk of creating an unaccountable political class, paid from the pocket of general taxation while owing nothing in return. It also entrenches the existing trio of parties in their roles, rendering our already distortionary electoral system immune, to all intents and purposes, to change. And, of course, it would be expensive.

The purported "middle ground" of capping donations, meanwhile, seems unworkable politically, while solving none of the problems. If unions are counted singly, Labour won't sign up. If they aren't, the Tories won't. The cap won't be low enough to prevent some donors still having  outsized influence, and yet it won't be high enough to prevent some or all of the parties suffering major financial hardship.

But a number of American campaign finance experts, including Yale's Bruce Ackerman and Harvard's Lawrence Lessig, support a third way. The idea is that every voter is given a voucher for $50, to donate to a political actor as they see fit – it can go to parties or candidates, mainstream or independents, and it doesn't have to be used at all. In exchange, candidates who want to accept the money must agree to stricter rules. Ackerman suggests mandatory donor anonymity (to prevent "influence peddling"), while Lessig suggests a cap on any individual donation of just $100.

WonkBlog's Dylan Matthews reports that the idea has just been given a boost. John Sarbanes (son of the Sarbanes-Oxley Act's Paul Sarbanes) is planning on introducing the Grassroots Democracy Act to Congress:

The bill has three components. The first is a voucher of the kind Ackerman, Ayres and Lessig endorse, implemented as a $50 refundable tax credit for congressional donations, so even people who do not make enough to pay income taxes are eligible. The second is a matching system, where campaigns that reject PAC money will get $5 from a public fund for every private donation of $1, and those that agree to collect only small contributions receive $10 from the public fund for every private dollar. The third is a fund to provide support to candidates who are facing heavy third-party expenditures from super PACs and other groups, to make sure they aren’t drowned out.

Some of the side-effects of such a reform would be positive, as well. Most interestingly, it introduces a form of PR into the electoral system. Every "vote" using a voucher has the same effect, whether it goes to Labour or the Monster Raving Loony Party, and it is impossible to "waste" it. And depending how widely the vouchers can be used, it could allow people to donate to issue groups as well as parties, meaning that organisations like the Electoral Reform Society could see a boost in their funding.

Of course, the one thing it doesn't ensure is that the balance of power is conserved. For that, parties would be advised to look elsewhere. But MPs who are serious about party funding reform may want to consider a similar move.

Barack Obama. The president elected not to take public funding because he had so many private donations. Photograph: Getty Images

Alex Hern is a technology reporter for the Guardian. He was formerly staff writer at the New Statesman. You should follow Alex on Twitter.

Show Hide image

Stability is essential to solve the pension problem

The new chancellor must ensure we have a period of stability for pension policymaking in order for everyone to acclimatise to a new era of personal responsibility in retirement, says 

There was a time when retirement seemed to take care of itself. It was normal to work, retire and then receive the state pension plus a company final salary pension, often a fairly generous figure, which also paid out to a spouse or partner on death.

That normality simply doesn’t exist for most people in 2016. There is much less certainty on what retirement looks like. The genesis of these experiences also starts much earlier. As final salary schemes fall out of favour, the UK is reaching a tipping point where savings in ‘defined contribution’ pension schemes become the most prevalent form of traditional retirement saving.

Saving for a ‘pension’ can mean a multitude of different things and the way your savings are organised can make a big difference to whether or not you are able to do what you planned in your later life – and also how your money is treated once you die.

George Osborne established a place for himself in the canon of personal savings policy through the introduction of ‘freedom and choice’ in pensions in 2015. This changed the rules dramatically, and gave pension income a level of public interest it had never seen before. Effectively the policymakers changed the rules, left the ring and took the ropes with them as we entered a new era of personal responsibility in retirement.

But what difference has that made? Have people changed their plans as a result, and what does 'normal' for retirement income look like now?

Old Mutual Wealth has just released. with YouGov, its third detailed survey of how people in the UK are planning their income needs in retirement. What is becoming clear is that 'normal' looks nothing like it did before. People have adjusted and are operating according to a new normal.

In the new normal, people are reliant on multiple sources of income in retirement, including actively using their home, as more people anticipate downsizing to provide some income. 24 per cent of future retirees have said they would consider releasing value from their home in one way or another.

In the new normal, working beyond your state pension age is no longer seen as drudgery. With increasing longevity, the appeal of keeping busy with work has grown. Almost one-third of future retirees are expecting work to provide some of their income in retirement, with just under half suggesting one of the reasons for doing so would be to maintain social interaction.

The new normal means less binary decision-making. Each choice an individual makes along the way becomes critical, and the answers themselves are less obvious. How do you best invest your savings? Where is the best place for a rainy day fund? How do you want to take income in the future and what happens to your assets when you die?

 An abundance of choices to provide answers to the above questions is good, but too much choice can paralyse decision-making. The new normal requires a plan earlier in life.

All the while, policymakers have continued to give people plenty of things to think about. In the past 12 months alone, the previous chancellor deliberated over whether – and how – to cut pension tax relief for higher earners. The ‘pensions-ISA’ system was mooted as the culmination of a project to hand savers complete control over their retirement savings, while also providing a welcome boost to Treasury coffers in the short term.

During her time as pensions minister, Baroness Altmann voiced her support for the current system of taxing pension income, rather than contributions, indicating a split between the DWP and HM Treasury on the matter. Baroness Altmann’s replacement at the DWP is Richard Harrington. It remains to be seen how much influence he will have and on what side of the camp he sits regarding taxing pensions.

Meanwhile, Philip Hammond has entered the Treasury while our new Prime Minister calls for greater unity. Following a tumultuous time for pensions, a change in tone towards greater unity and cross-department collaboration would be very welcome.

In order for everyone to acclimatise properly to the new normal, the new chancellor should commit to a return to a longer-term, strategic approach to pensions policymaking, enabling all parties, from regulators and providers to customers, to make decisions with confidence that the landscape will not continue to shift as fundamentally as it has in recent times.

Steven Levin is CEO of investment platforms at Old Mutual Wealth.

To view all of Old Mutual Wealth’s retirement reports, visit: www.oldmutualwealth.co.uk/ products-and-investments/ pensions/pensions2015/