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Miliband's gamble on union funding could cost Labour millions - but it is one he had to take

If the Labour leader is to be a consistent supporter of democracy and transparency, he cannot defend a system that allows unions to donate millions from their members without permission.

Ed Miliband makes a speech on the high street in Worcester town centre on April 25, 2013. Photograph: Getty Images.

Ed Miliband's decision to support a new opt-in system of trade union funding for Labour is by some distance the biggest gamble he has taken since becoming party leader. At present, members of affiliated unions merely have the right to opt-out of paying the political levy (a portion of which goes to Labour) but under the new system they would be required to give their explicit consent. This reform, as I argued yesterday, is entirely necessary if Miliband is to be a consistent supporter of democracy and transparency.

At present, of the 15 unions affiliated to Labour, Unison is the only one to allow new members to choose whether or not they contribute to the party when they sign up. Only two others, the Musicians’ Union and USDAW, mention the existence of a political fund (but do not mention Labour) and six affiliated unions, including Unite and the GMB, don’t mention Labour at all on either the "about us" or membership sections of their website. As a result, while all members have the right to opt-out of paying the levy, it is far from easy for them to do so (just 10 per cent do) and many will not even be aware of its existence. It is this arrangement that allows the Tories to argue that unions such as Unite (just 37.5 per cent of whose members vote Labour) dupe workers into subsidising the party.

In his speech tomorrow, Miliband will say:

I do not want any individual to be paying money to the Labour Party in affiliation fees unless they have deliberately chosen to do so. I believe we need people to be able to make a more active, individual, choice on whether they affiliate to the Labour Party.

But while this move will do much to enhance his reformist credentials, it could prove to be the most costly decision he ever takes. Labour currently receives around £8m a year in affiliation fees from 2.7 million levy-payers, but this total is likely to fall dramatically if members are required to opt-in; one party source told me that he estimated that it would cost Labour as much as £5m. In addition, as Mark Ferguson points out, if only hundreds of thousands or tens of thousands of trade unionists choose to become affiliates it will be harder for the unions to justify remaining affiliated at all.

Set against this are the political benefits Miliband will reap. An opt-in system will make it easier to justify exempting union affiliation fees from the £5,000 cap on donations previously proposed by Labour on the grounds that they should be treated as an aggregate of individual members' contributions, rather than as one lump sum. As a Labour source told me: "It will allow us to frame the Tories as the party of big money and us as the party of millions of working people." (Although, as I noted above, the danger is that nothing like "millions" will affiliate.) The Conservatives' resistance to party funding reform will look more self-interested than ever.

Requiring trade unionists to opt-in will also force unions to make a more explicit and positive case for supporting Labour, with the possibility of much greater individual engagement with the party. In the 2010 leadership election, turnout among trade unionists was just 9 per cent, with 15 per cent of ballots spoilt, in most cases because workers failed to state that they agreed with "the aims and values" of the party.

What remains unclear is how the new system will be introduced. Labour is briefing that it does not favour a change in the law, with the expectation being that unions will introduce the measure voluntarily. But in an article for today's Guardian, Len McCluskey comes out strongly against the reform, writing that it would "require Labour to unite with the Tories to change the law, would debilitate unions' ability to speak for our members and would further undermine unions' status as voluntary, and self-governing, organisations." Other general secretaries are likely to be equally sceptical.

There will be many in Labour who hope that they prevail. And they have a point. The opt-in system should be supported as a matter of democratic principle but Labour has just sacrificed millions in funding and one of its key bargaining chips in party funding negotiations.

Miliband has calculated that he will derive greater benefit from taking the moral high ground and removing the stain of big money from the party. For Labour's sake, he had better be right. 

P.S. While the change to union funding is by far the most significant reform planned by Miliband, he will also use his speech this morning to announce that Labour will hold a primary to select its 2016 London mayoral candidate and in seats where the local party has few members or needs to be "re-energised".

In addition, he will promise to introduce a new code of conduct for those seeking parliamentary selection, a cap on spending by candidates and organisations operating on their behalf (including the unions) and standard constituency agreements with trade unions so that no one can be subjected to undue local pressure.