LOCAL VOLUNTARY action is the foundation for healthy democracy. The “loans for peerages” scandal raises two democratic issues. “Loans” raise the whole issue of funding for political parties; “peerages” raise that of the composition of the House of Lords.

On both, political opinion has been moving. There is almost a consensus, at least between the front benches, that there will have to be much larger state funding for the parties. There is another consensus, outside the Lords itself, that the Upper House will have to be largely elected, rather than wholly appointed. Both of these propositions need to be examined; they belong to the centralised state.

Evidence to the Hutton inquiry revealed how far this Government is run by a small group of friends, who take major decisions of state in the chummy atmosphere of the Downing Street club. The majority of these cronies are unelected; they are political advisers, or civil servants who have the personal confidence of Tony Blair. The Prime Minister himself leads a party within a party and a government within a government.

One source of his power is that he controls a high proportion of his party’s fundraising through Lord Levy, who is a very personal appointment. Another key ally is the Lord Chancellor, Lord Falconer. Last week Lord Falconer boasted of his crony status: “I would like to make it absolutely clear I did not pay for my peerage. Sharing a flat with Tony Blair was quite adequate.” That happy jest is too true to be forgotten.

Crony government has been accompanied by crony finance. Lord Levy has a network who could be described as friends of the friend of the Prime Minister. At first sight it would seem desirable to replace this network with a more open system of state funding.

However, the money would go to the same people, and there would be more of it. If the Labour Government has its inner club, so, to a lesser extent, has the Conservative Party. The balance of power between the central leadership and the constituencies has shifted in favour of the centre in both major parties. Those who see themselves as outsiders are suspicious of the Notting Hill set. In the Labour Party, the central group has neutered the National Executive and has nominated some very unlikely beneficiaries to seats in both Houses. Shaun Woodward, with his butler and his wife’s millions, looked a fairly natural Conservative member for Whitney, now David Cameron’s seat, but is a joke as Labour member for St Helens South. He would hardly have been chosen for such a seat by an independent local majority of party workers.

If there is a big increase in state funding, the party bureaucracies will become larger, more powerful and inevitably more arrogant. The constituencies and the more independent-minded backbenchers will have less and less influence. More parliamentary candidates will be imposed from the centre. The national campaigns will cost more and more.

Even the 1997 general election now seems to belong to an age of innocence; by 2005, general elections, like US presidential elections, had become a sophisticated electronic marketing exercise, where modern methods distil out the marginal voters. If the parties are given more money their campaigns may become as expensive as they already are in the US. Private funding can itself lead to undesirable cronyism but public funding would be a growth hormone for centralisation.

There is a similar problem in the future composition in the Lords. The appointment system is an anomaly, but it may prove more useful and less damaging than an elective system. At present, despite being appointed, the House of Lords does a good job. It has more legislative expertise than the Commons, far more independence and a stouter record for defending civil liberties. Since the hereditary peers were removed the Lords has become more self-confident. Rightly so.

An elected Lords would not be compatible with the Prime Minister’s own principle of the overriding authority of the Commons. Last week, answering a question from Sir George Young — who certainly ought to have been made Speaker — Tony Blair replied: “The one thing that I have said before, and I say again now, is that I will not do anything that challenges the primacy of the House, and it is important that we avoid ending up with gridlock between the two houses of Parliament.”

Now the Prime Minister himself seems to be drifting towards an elected House of Lords. There is no way in which an elected Lords would continue to accept the ultimate supremacy of the Commons. Gridlock would be the norm.

Indeed, no one seems to be sure how the members of the House of Lords would, or should, be elected. A natural parallel might be the European Parliament, with proportional representation. In that case both houses would be elected, one on a proportional and the other on a first-past-the-post system. The Lords might seem the more democratic.

There are strong arguments against each of the immediate responses to the “loans for peerages” issue. State funding would increase the power of insider groups in all the parties and would weaken the local independence of British politics. This would not make for better but for worse government. An elected House of Lords would certainly quarrel with the House of Commons.

Clandestine funding by undisclosed loans is obviously undesirable. That does not mean that state finance would be better. Funding limits might make it very difficult to finance such new parties as Sir James Goldsmith’s Referendum Party. State funding would undermine the local and voluntary principle in existing parties; it would transfer power to the centre, which would be given the money to spend.

Voluntary workers in the constituencies may now be few and far between, but they are the salt of politics. Over-centralised parties are vulnerable to the takeover of small groups; they will become even more vulnerable if there is a pot of gold at the end of the political rainbow.

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