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Nick Clegg has been on a crusade to ensure he leaves a lasting Liberal Democrat legacy to the British political system that doesn’t include smashed up buildings or “I agree with Nick”-type catchphrases. It’s been a tough ask. Although, he has managed to spawn some nodding dog memorabilia which will live long beyond his lifetime and cement his place in history. His attempt to reform the parliamentary voting system towards a form of proportional representation to suit the Liberal Democrats failed at the first hurdle. His House of Lords reform bill is still in its draft stage amid doubts cast over the likelihood of its success to ascendancy. Indeed, the most significant reform of our political system has come with the boundary changes, changes that will have a detrimental effect on the fortunes of the Liberal Democrats. So Clegg is at it again. This time he’s going for party funding reform; an area where reform has proved elusive for years due to a lack of a cross-party consensus on any proposals.

The Committee on Standards in Public Life, a committee which includes equal representation from the three main parties and consists mainly of independent members, is due to publish the results of its inquiry into party funding. The draft report contains proposals for parties to receive state funding to the tune of £3 for every vote received. Based on the 2010 general election results, this would result in the Conservatives getting £32m, Labour £25.8m and the Lib Dems £20.4m. This would represent a significant win for the Liberal Democrats. There are limits on party expenditure in regards to campaigning, and at the moment that is split up into three parts covering expenditure relating to party spend and candidate spend. First, there is the £19.5m limit on party spending during the year running up to the general election. Then there are the spending limits for each candidate during what is known as the “long campaign” (last year it was 1st January – 12thApril) and the “short campaign” (dissolution of parliament – election day). These are roughly £30,000 per candidate and £10,000 – £12,000 per candidate respectively. In theory, political parties and their candidates can spend up to £45m in an election year. In the 2010 election year, the Liberal Democrat Party spent £4.7m, with their candidates spending another £5m in their own campaigns.

Clearly a £20m state grant would boost the position of the Liberal Democrats significantly. They have already been forced to lay off staff and move their party headquarters to a cheaper building because of funding problems. To receive quadruple what they spent last year, on top of what they spent anyway, would give them a £25m election war-chest to spend centrally. Of course they have their own running costs for the rest of the parliamentary term to fund, but the changes being proposed would not see their funding significantly reduced in comparison to the other parties. Especially seeing as though these costs have been reduced, and aided by their position in government.

This would certainly solidify the longevity of the Lib Dems. It would also, in the short term, alleviate any concerns that the Labour Party may have over their funding difficulties, and free them from over-reliance on the trade unions. It would totally establish our political system as a minimum three party system.

The effects of the proposals would extend further however. When applying to proposals to all parties, it would see a number of party receive more state funding than they currently spend from their own pocket. The Green Party, for example, would receive over £850,000 for their performance in the 2010 election. In that election, as a party they spent £325,425. With a price set on every vote, parties will have both the resources and the incentive to fight for every vote in every seat. This would be a welcome change to UK electioneering. It may not see an end to parachuted candidates and safe seats, but it will at least lay the foundations to challenge this status quo. Although it is sad that money is deemed to be the incentive, it is difficult to imagine how it could be done in any other way.

As it happens, these proposals may not even see the light of day in their current form. David Cameron is opposing the suggested cap on individual donations of £10,000, claiming this would wipe out a significant portion of Tory funding needed for their day to day running costs, and that £50,000 as a limit would be more fair. Labour and the Tories are also, predictably, squabbling over the opt in/opt out mechanism of trade union donations. This argument is what scuppered an agreement last time round when the Brown government tried to reach a consensus on reforms.

While the two big parties argue over trade unions and donation limits, the other parties will hoping that the proposals can be pushed through in one form or another. Whether the limit on donations is £10,000 or £50,000, it is unlikely to have any adverse effect on any other party apart from the Conservatives and the Labour Party. Some of the smaller parties rely on a handful of large donors to fund their activities, but the state funding option will more than compensate for this. There are dangers to this however. Some of the smaller parties are what they are because they don’t attract enough mainstream support. By state-funding them based on the support they do have, extremist parties are likely to benefit. For example, the British National Party would receive over £1.5m based on the last election results. With more money being offered for the votes they receive, their profile is likely to rise. It is possible that we will see elections fought with a more extremist presence involved. With money at stake, parties may end up trying to appeal to these extremist wings where it makes financial sense to do so. The BNP spent just under £30,000 for the 2010 election; to gain £1.5m off the back of that would be seen as a pretty good effort. Profit seeking may yet infect our voting system.

The consequences of these proposals depend a lot on how parties can engage with their voters. Will the financial reward offered to parties for their vote, motivate people to turn out on polling day? Or will it turn them off even more? Up until 2005, turnout in elections has generally fallen since 1950, but not in every election. Our last two elections have seen a slight increase in turnout. Whether this is the start of a long-term upwards trend, or a usual anomaly as part of a general downward trend, will be crucial; especially to the Labour Party. In recent years the Labour Party has seen their traditional support base start to disintegrate. A common fact to most Labour party campaigners is that many voters they encounter on the doorstep will either vote Labour, or not vote at all. And ever increasingly, they are not voting at all. If this continues not only will Labour be out of power, they will be out of money too. This will present a dilemma to the party. Do they attempt to re-engage with their traditional base and get them out to vote, believing it to be possible? Or do they seek to appeal to the people who are voting already, taking them rightwards and exacerbating their situation even further? Should they lose out on some of their trade union funding through these proposals, this is undoubtedly the choice they will be faced with. With extremist parties on the rise, the Liberal Democrats abandoning many of their left wing principles and the Labour Party facing this reality, British politics may lurch even further to the right come 2020.

Meanwhile, Nick Clegg will be hoping these proposals play their part in British history. By choosing to base the funding on the number of votes each party collects nationally, this will be a form of funding based on proportional representation. It will be an important part of UK politics and general elections without having an element which recognises the parliamentary constituency system at all. By going down this road, the proposals will assist unrepresented and under-represented parties in parliament, including extremist parties. They may also engineer a scenario in the future where parties are funded by PR, but voted in by FPTP. If the proposals result in the smaller parties eating into Labour and Conservative parliamentary majorities, evolution may turn the tide towards more PR in our voting system. Don’t count your nodding dogs yet, Clegg may yet make his mark.