None of their business

As millionaires go, Lord Hamlyn is about as irreproachable as you can get. He made his money out of books and records, many of them culturally uplifting. No scandal or dubious practice or ideological insanity has ever been associated with him - unless you count a brief period in the employment of Rupert Murdoch - and he has a long record of generous donation to the arts and education. As long ago as 1990, he gave £100,000 to help develop Labour's arts policy and, in 1991, he gave £1m to a national commission on education (a sort of private royal commission) whose conclusions were far too sensible to interest either major party. Old, ill and safely ennobled two years ago, yet still willing to sign a cheque for £2m, Lord Hamlyn was a donor of whom new Labour ought to have been proud. To engineer a situation where this blameless philanthropist had to be "unmasked" (to quote the Daily Mail headline) betrays astonishing ineptitude by the supposed masters of spin.

These are short-term issues, suggesting merely that Tony Blair ought to be alarmed, close to an election campaign, by the apparently shambolic state of Millbank. The longer-term issues concern party funding and the health of democracy. The naive may think that all will be well in six weeks' time, when new laws will require disclosure of large donations. But America shows that even open donations corrupt, and experience from all over the world suggests that politicians will use all sorts of means, legal and illegal, to get round the rules. To expect that it will ever be otherwise is optimistic: politicians, almost by definition, are people who will find compelling reasons (to save us from a red terror, another conservative century or a Brussels jackboot) why, in any given election, it is in the overriding national interest that they be returned to power.

So, once more, the call will be made for state funding of political parties. But why should taxpayers finance party broadcasts that most of them find insufferably tedious, party literature that most put immediately in the waste bin, and politicians' walkabouts that most would do anything to avoid? Far from reviving democracy, the state funding of parties could easily damage it further. It would allow the existing parties to form what would amount to a cartel, excluding new entrants such as the Greens or the Scottish Socialist Party. Moreover, it would strengthen the power of the party leaderships against their constituency members, on whose subscriptions and fund-raising efforts they would no longer need to rely. As soon as state funding came in, the party hierarchies would start to shrug off the influence of "out of touch" activists, and there would be a further shift to the politics of the metropolitan think-tanks, the party bureaucrats and the focus groups. Party membership and involvement would become less attractive than ever.

These objections could be met if funding were based on party membership (with state money matching, pound for pound, what is raised from subscriptions), rather than on votes cast in previous elections. But the feasibility of that solution depends on the parties' interest in reviving genuine participatory democracy. There is no evidence that they have any such interest. Indeed, new Labour's need for big business donations is the direct result of its attempt to reduce its dependence on the trade unions, which it regards as shameful, inhibiting and corrupt allies.

Yet the union influence, for all its faults, was at least transparent, and the unions observed at least the forms of democratic procedure. Once, a union leader might be rewarded with a peerage and a job on some quango, or even in the Cabinet itself. Now, a top businessman (and it is nearly always a man) will be similarly rewarded. This is somehow regarded as less reprehensible, the business person being, according to new Labour wisdom, more independent-minded, less encumbered by political baggage, more dynamic and forward-looking. Yet it was the union leader who, at least once, had undergone something resembling a democratic election, even if the voters were drawn from a small and unrepresentative section of the population. For "political baggage", read accountability.

New Labour, if it truly wishes to create a new kind of politics, should build on the union link, not destroy it, looking for new forms of political and community association that could revive democracy. Lord Hamlyn's blamelessness notwithstanding, his donation is a reminder that the influence of big business on governments of all political hues has gone too far and ought to be reversed.

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