AN OFFICIAL review into the funding of political parties will this week propose that legal caps should be introduced on both donations and party spending.

Increased state funding for political parties should be available only if the new legally enforced curbs on funding and spending are introduced.

Sources have disclosed that the review will also propose new measures to avoid donors getting around the rules by donating money to organisations close to political parties, such as think tanks.

However, Sir Hayden Phillips, a former senior civil servant who conducted the review, is understood to have conceded that he has failed to broker a deal between the main political parties to accept the scheme.

He will warn that further negotiations between the parties over his 10-point plan are required and the exact levels of the caps are agreed. His review was set up almost a year ago after the cash for honours scandal erupted, amid fears that wealthy political donors were buying undue influence.

However, Labour has blocked Tory proposals to limit donations to parties at £50,000 annually. The Conservatives, in turn, have rebuffed Labour proposals to limit annual spending by political parties.

Labour’s failure to reach a deal is likely to prompt renewed criticism that the review was established only to deflect attention from the honours scandal and that there was no real desire to negotiate.

Separately, it has emerged this weekend that the government is set to abolish several sleaze watchdogs — including the Committee on Standards in Public Life and the House of Lords Appointments Commission — which have been critical of Labour ministers and policy.

The Cabinet Office is awaiting publication of a report by the Labour-chaired Commons public administration select committee (PASC) into public standards regulators.

Sources have indicated that the government is confident the PASC will recommend far-reaching change that it can quickly implement. It has refused to renew the contract of Sir Alistair Graham, chairman of the standards committee, until the report is published next month.

The PASC is expected to recommend the abolition of five independent watchdogs which will be amalgamated into a new body accountable to parliament.

Professor Robert Hazell, a special adviser to the PASC, inadvertently revealed the recommendation in an academic newsletter published by University College, London.

A spokesman for the PASC described the recommendation as a “draft” conclusion that had yet to be finally agreed by the committee.

One Whitehall source said: “The government appears to be using the cover of a PAC report to be abolishing some of their most persistent and damaging critics. But these bodies were established to be independent and to draw problems to public attention as parliament had failed in this duty in the past.”

Graham and the public standards committee have been outspoken at the failure of Blair to tackle sleaze among ministers. The Lords appointments commission last year blocked four Labour peers at the centre of the honours scandal from taking seats in the upper chamber.

The bodies under threat declined to comment before the publication of the PASC report.

Additional reporting: Michael Pinto-Duschinsky

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