The cross-party talks on party funding are about to break down and recriminations have already started. This is not just about allocating blame, but as much about what happens next.

Sir Hayden Phillips has been chairing talks since the spring following his report on funding. He likes to emphasise the extent of agreement while the parties underline areas of disagreement. While the latter are now obviously crucial, it would be wrong to lose sight of where there is a consensus.

According to Sir Hayden, the status quo is unsustainable, so not only should donations to parties be limited, but spending on general election campaigns should be cut, after rising to £95 million at the last election. The price of “a fairer, more stable system” may be some increase in public funding of parties, linked to popular support: all at a total additional cost to taxpayers of not more than £20 million to £25 million a year.

But, throughout, there have been two stumbling blocks: firstly, Labour’s desire to protect the union link via the aggregation of individual members’ affiliation fees in one block; and, second, the Tories’ resistance to overall limits on spending. These would cover periods between elections, rather than just the one year up to polling day, as now. Labour MPs in marginal seats are worried about the alleged influence, and cash, of Lord Ashcroft in masterminding the Tories’ target seats strategy. David Cameron has proposed a £50,000 cap on all donations as one of the conditions for accepting limited state funding. But twice recently he has said that the “package currently proposed” does not amount to a fundamental reform. Only if donation limits apply to unions will he agree to continue the negotiations.

There is, anyway, unhappiness on the Tory side with the suggested caps on donations and, especially, on local spending. This is justified by the Tories as offsetting the advantages enjoyed by incumbent (notably Labour) MPs via various Commons expenses, notably the communications allowance. Given that Tory finances are now much healthier than Labour’s, many Tories would be relaxed about the talks collapsing.

Jack Straw, the Justice Secretary, responded yesterday in the Commons by appealing for the Tories to remain in the talks, now scheduled for next Tuesday after two postponements. He defended the individual basis of union members paying the political levy.

Assuming there is no sudden breakthrough, the Government is preparing the way for legislation in the coming session, as Geoff Hoon, the Labour Chief Whip, has hinted. This will be contested by the Tories as being one-sided. Labour will hope to gain the support of the Liberal Democrats who are keen for a lower, and more effective, limit on spending. But any deal with the Lib Dems could depend on donation limits applying to unions, a sticking point for Labour. Moreover, any spending limits could not affect the current Ashcroft targeting efforts and would not become law until late next year at the earliest.

Legislation is needed to halt the rise in spending, to strengthen controls and to clarify the responsibilities between ministers and regulators, as the Scottish shambles shows. But for all this week’s recriminations, the absence of consensus, and unilateral action, has risks for both main parties.

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