There is a dangerous loophole in our political financing rules

Author:
Jessica Garland, Director of Policy and Research

Posted on the 12th June 2023

Shadowy dining clubs and millions of pounds in donations. This is the realm of ‘unincorporated associations’ one of the least-regulated areas of political finance in the UK.

Last week, Politico reported that these little-known entities have donated more than £14 million to British political parties over the past five years. While political parties in the UK are required to be transparent about their fundraising activities, unincorporated associations have far fewer restrictions. Funding from them must be declared, but how they got the money in the first place can be shrouded in secrecy.

This lack of transparency means they could potentially be exploited to funnel foreign money into British politics, evading regulatory scrutiny.

What is an unincorporated association?

Unincorporated associations are intended as a means to establish small non-profit organizations without the complexities of formal registration as a company or charity. Imagine an amateur sports team who wants to accept sponsorship or a choir that needs to hire a rehearsal space.

As small non-profits, they are not obligated to submit annual financial statements, open business bank accounts, or register a formal name.

While it is a good structure for groups of enthusiastic volunteers, when they get involved in politics the funding regulations for unincorporated associations are worryingly scant.

Declaring (some) donations

In Great Britain, an individual needs to be on the electoral register to make a donation to a political party. Likewise, for a company to make a donation they need to also be UK registered. But whilst UAs are on the list of permissible donors, those that give money to them do not need to be permissible donors.

If an association donates under £25,000 a year, no questions are asked. Once it hits that threshold, it is required to tell the Electoral Commission about any gifts of more than £7,500 it received from a single source in a 12-month period.

But this can in turn be avoided as Unincorporated Associations only have to count donations of £500 or more toward this £7,500 threshold.

Moreover, whilst a UA must disclose what donor information they have for gifts above the thresholds, they are still permitted to donate them.

It’s clear why the Committee on Standards in Public Life has highlighted unincorporated associations as a potential route for foreign money to influence UK elections and recommended tightening regulations.

More an open door than a loophole

As Politico reported, “Despite tens of millions of pounds being donated through UAs in the last decade, the Electoral Commission’s register shows that only a single group has ever reported hitting the £7,500 threshold, requiring more disclosure.”

To restore public trust in politics we need to reform these murky arrangements. At a time when concerns about who is attempting to influence our politics grow, that such a gaping hole remains in our rules on political donations is deeply worrying.

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