THE stakes are high and the politics raw. The talks on party funding that started on Tuesday evening could change the British political landscape. Whether they will largely depends on Tony Blair.

At issue is not just whether wealthy people can make big donations, and get honours in return. That is secondary. The central question is the trade unions’ financial links to Labour. That will determine whether there is a cross-party deal.

Mr Blair has been scorched by the party funding row. He is visibly uncomfortable about it. He hates his integrity being challenged. He is therefore determined to change the system so that party leaders do not have to be personally involved in raising money. His instincts are further to loosen the links between Labour and the unions, unfinished business from the mid-1990s.

In the eyes of many Blairites, any union involvement in the Labour Party should be individual, not collective. David Cameron’s proposals would challenge that link by putting a cap on all donations from individuals, companies or unions of £50,000 a year. The Tory offer to Labour is: we will forgo big donations from wealthy individuals and companies if you accept tight limits on trade union support.

That is anathema to Labour traditionalists. Ian McCartney, the Labour chairman, made this plain at Tuesday’s meeting, and later, when he said that any proposals would have to be agreed by the party conference where the unions still have 50 per cent of the votes.

His phrase about “the importance of the constitutional position of trade unions as an integral part of the membership of the Labour Party” is intended to head off any weakening of the link. Labour’s tactic is to suggest that donations should be capped according to the the organisation’s membership, whether a union or a company. But this is misleading, not just because few big companies any longer make donations but mainly because union decisions are collective not individual. If individual union members were allowed to decide whether, how much and where any donations went, it would be a different matter.

The unions now have a big opportunity to regain power within Labour since they can fill a gap created by the probable unwillingness of wealthy people to risk the publicity and criticisms involved in making donations. But a union comeback would be damaging electorally for Labour, and Gordon Brown, the Chancellor.

But if a cap has to be equitable between wealthy individuals and unions, there also has to be a plausible alternative. As the latest Populus poll for The Times shows, voters are ambivalent.

They overwhelmingly favour limits on donations, but they are also, by a smaller margin, hostile to increased state funding. The only option gaining a narrow majority of support is tax relief on “relatively small individual donations”. The American experience, as well as the use of loans by UK parties to dodge disclosure requirements, shows that limits encourage evasion. Any solution has to be seen as equitable, not favouring one party.

Moreover, any blanket expansion of state funding risks ossifying the current structure and being unacceptable to voters. Any package should combine transparency, increased choice to voters (notably tax relief or, less plausibly, a voucher at election time, as proposed by the Power Inquiry), together with an incentive to parties to broaden grassroots support and involvement. A link to past votes won, as suggested by the Tories, is not enough.

Mr Blair wants to settle the issue before he leaves Downing Street. But he and Labour traditionalists have a different outlook. The outcome will show whether Mr Blair can still command his party, or has to go along with a minimal fudge.

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