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The Political Parties, Elections and Referendums Act 2000 (PPRA) aimed to promote transparency with the party funding system. Most rules on party funding came into effect on February 16th, 2001. The relevant sections (Parts 1-6, 9) impose new requirements on parties in their financing, campaign expenditure and internal accounting procedures.

It is arguable that whenever someone pays money to a political party, they expect something in return. The problem in the UK has been that parties are largely reliant a relatively small number of large donations, so that the potential influence of particular donors is proportionately large.

Reform of party financing was driven, in part, by increasing awareness of "sleaze" during successive Conservative governments. In 1997, the incoming Labour government referred the matter to the Committee on Standards in Public Life. PPERA was based on the recommendations of the Committee's fifth report. Recent events suggest that, while these reforms have had an effect, they have also encouraged parties to be more creative. Sleaze has not gone away.

Parties can only accept donations from "permissible" donors. Essentially, this means individuals who are on the electoral roll, UK registered companies, trade unions and other organisations such as friendly societies. The Act effectively bans overseas donations. It is a criminal offence to accept impermissible donations.

There is no ceiling on the amount that can be donated, although all political parties must submit a quarterly donation report to the Electoral Commission, listing all donations of £5000 or more. Parties must also report any donations made to branches of £1000 or more. During a general election political parties must provide weekly reports of donations worth £5000. Donors themselves must register with the commission if they donate £5000 or more to an organisation or more than £1000 to an individual within a calendar year.

PPERA has increased transparency in official donations. However, continuing examples of parties being open to influence by donors has led to demands for tougher rules, or for parties to be wholly funded by the state. Others have complained that increasing regulation impacts disproportionately on smaller parties.

In July 2001 the Prime Minister wrote a personal letter to the Prime Minister of Romania, on behalf of Lakshmi Mittal, a tycoon with an estimated fortune of £2.2 billion, who was attempting to purchase Sidex, Romania’s national steelworks. Mr Blair attempted to justify his intervention by stating that the purchase was good for the UK’s industry. However, Mr Mittal's company was in competition with UK steel, was based in the Dutch Antilles, and was exempt from UK taxes.

One month before Blair's intervention, Mr Mittal had donated £125, 000 to the Labour Party.

In 2004, Paul Drayson of the pharmaceutical company PowderJect, was given a peerage. Just one month later, he donated £500,000 to the Labour Party. PowderJect had recently been awarded a lucrative government contract.

While PPERA at least makes it easier to track large donations, there is evidence that parties are being more creative in working around the new rules. Overseas companies can, for instance, channel donations through "shell" companies in the UK, This was the case when Bloomberg, a US publishing company, gave £50,000 to Labour in 2004.

In the 2005 election campaign, it emerged that parties were avoiding disclosure by accepting long-term "loans". These are not covered by the PPERA (providing they are on commercial terms). For the parties, this method has the advantage of postponing full reporting. A ten year interest-free loan would only come to light in the eleventh year.

The argument for full state funding may be less motivated by concerns about corruption than by the reality of declining core support for both main parties. At £16m, annual donations are now far more significant than income from membership (£3.2m) or trade union affiliation (£6m and falling).