Calculating the 'soaring' £1.75billion cost of political parties to the taxpayer

The research claims hidden state subsidies have soared in the past 40 years as the cost of MPs, MEPs, councillors and advisers has ballooned.

Political finance expert Dr Michael Pinto-Duschinsky said the £1.75billion - more than £437million annually over a normal four-year electoral cycle - was made up of direct payments, "in-kind" benefits such as free TV advertising, and indirect subsidies including MPs', MEPs' and councillors' salaries and generous allowances.

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But even that, he said, was a vast underestimate because he had not included benefits such as free premises, use of official cars and telephones.

He added: "Since the late 1960s there has been a huge and ever continuing growth in such indirect state subsidies."

Dr Pinto-Duschinsky's report for the centre-Right Policy Exchange think-tank said there was evidence that taxpayer-funded benefits were being used for party political purposes - even though this was strictly against the rules.

"A chunk of all this money and of other forms of political subsidy found its way into party coffers," he added.

The research fellow at Brunel University said his figures exposed as a "myth" Labour's claim that party funding needed reforming urgently because state aid for politics was "low level".

His conclusions deal a severe blow to the Government's efforts to force taxpayers to pay an extra £25million a year to bankroll parties.

The report also dismissed the so-called "arms race" in spending between parties - claiming overall spending had remained "surprisingly constant" when inflation was taken into account.

And he warned that increasing state funding would have a "toxic effect" on democracy - because if money became increasingly centralised the parties would have no incentive to recruit local members.

Tory spokesman Francis Maude said: "Given the succession of funding scandals under the Labour Government, there is a strong case for a comprehensive cap on donations - covering individuals, companies and trade unions."