If you had to dream up a Trollopian character for a novel who combined consummate political skills with a polished charm and sinuous guile, you would need to look no further than Sir Hayden Phillips. Drafted in to run the Lord Chancellor’s Department when Lord Irvine of Lairg needed some serious hand-holding, Sir Hayden slipped silkily into the post. When moved across to the Department for Culture, Media and Sport, he graced the capital’s first nights and private views with a panache that rivalled that of any theatre director or gallery curator. So if this mandarin of mandarins cannot come up with a watertight solution for the reform of party funding, it is probably fair to say that the project is doomed.

His report yesterday was a good stab, though many questions remain unanswered — and possibly unanswerable. Since Sir Hayden has now been asked to chair discussions between the three parties, it will be his job to try to find the answers. And the big question is whether the parties are willing to make the sacrifices required to achieve any such agreement.

The Liberal Democrats are not a problem. They first came up with a package pretty much identical to Sir Hayden’s — a cap on both donations and spending — as early as 1998. Since they can neither raise nor spend nearly as much as the two main parties, this clearly works in their favour. But there are big problems for Labour and the Tories, both of which claimed yesterday that they wanted to join talks and to reach an agreed outcome.

That is a start, but it may not be wholly sincere. Either side may decide that it had more to lose than to gain from the package, and insist on conditions that it knew the other would not accept to scupper the deal. The negotiations would then break up, with each party blaming the other for the failure to agree. That is exactly what happened over whether there should be a televised debate between the party leaders in a general election campaign.

On the other hand, voters don’t feel passionately about the absence of a televised debate. They do feel passionately about the importance of cleaning up party funding. They are even prepared to dig into their own pockets to provide taxpayers’ money for the political parties in return for reform. There is a huge weight of responsibility, therefore, on the parties to reach consensus and prove to the public that the conduct of politics is capable of being improved.

For the Tories, the stumbling block is the cap on spending. This report comes at a time in the political cycle when money is pouring into the party’s coffers after 15 lean years. What is more, in the seats that the Conservatives need to win to form a government, its candidates are up against incumbent MPs who have just voted themselves a £10,000 a year “communications allowance” that will allow them to pump propaganda out to local voters. Opposition candidates must at least be allowed to match that.

The Tories also point out that annual spending caps do not take account of the much longer-term ebbs and flows of party income. Now that they have money at last, they are spending like mad on trying to recruit and train networks of agents, open campaign offices in the North, update computer hardware and software and rebuild membership, all of which fell into desuetude during the years in which the party was virtually broke.

But David Cameron and his party chairman, Francis Maude, have been brave in their support of the principle of caps on spending and donations. Their large donors are not happy and nor are many of their party members. If local constituency spending is to be counted alongside national spending, which it has to be, then local associations will find their much-cherished freedoms rather annoyingly circumscribed.

Yet spending limits have to be more robustly defined than they are now. At the last general election, after all, the two big parties spent £90 million between them, even though the statutory limit was supposed to be just £36 million. There was more loophole than law in the Political Parties, Elections and Referendums Act, which brought in the supposed spending limit. And who piloted that Act through the Commons? One Jack Straw, the Leader of the House of Commons, who is in charge of both the Government’s and the Labour Party’s response to the Phillips report.

He now has a task that is just as tough as Sir Hayden’s. He has to achieve a consensus between the affiliated trade unions, Tony Blair, Gordon Brown and Hazel Blears, the party chairman, each of whom seems to have a slightly different view of what concessions are acceptable.

Sir Hayden insists that, if trade unions want to give the Labour Party more than £50,000 each, then their donations must be traceable back to individual members who have given permission for their money to be used by Labour. Labour, though, claims that trade union donations to the party are already closely regulated and transparent — if anything, overregulated.

In this argument, though, they will be outnumbered by the Tories, the Lib Dems and Sir Hayden himself. If they want to stop their opponents outspending them in marginal constituencies, they will simply have to agree to a mechanism that links trade union funding more to individual members.

And if they don’t, they will be blamed for the failure to reform the morass of party funding. Gordon Brown wants to distance himself from Blairite sleaze, so that wouldn’t be a great start to a new premiership.

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