Labour failed to declare millions of donations on time despite repeat warnings

The Labour Party has failed to declare millions of pounds of donations on time since the Government introduced legislation to improve transparency in political funding.

Despite repeated warnings from the Electoral Commission that reporting cash after the deadline set down in law is "unacceptable", both Labour and the Tories are continuing to declare hundreds of thousands of pounds late each year.

Under the Political Parties, Elections and Referendums Act 2000 (PPERA), all parties are required to declare donations within 30 days of the end of each quarterly reporting period.

Individual politicians are required to report donations within 30 days of receipt.

It was his failure to comply with this rule that prompted the controversy over the funding of Peter Hain's Labour deputy leadership campaign which claimed his Cabinet position yesterday.

Prime Minister Gordon Brown described the £103,000 of donations belatedly declared by the former work and pensions secretary - and now subject to a police investigation - as an "incompetence".

But Electoral Commission records show Labour, the Conservative Party and the Liberal Democrats consistently declare donations outside the 30-day timeframe.

Labour's late declarations since PPERA was introduced in 2001 total more than £2.8 million, analysis has revealed.

The Tories' amount to just over £980,000 and the Lib Dems' about £269,000.

Most other mainstream parties have failed to report at least some donations on time - including the UK Independence Party, Respect and the Greens - although smaller sums are involved.

Since the reporting requirements were extended to borrowing in the aftermath of the "cash-for-honours" affair, loans have also been reported late by all three main parties - £5,000 by Labour, £168,250 by the Tories and £70,250 by the Lib Dems.

The Electoral Commission first raised concerns about Labour's failure to comply with the legislation in November 2002.

Since then the elections watchdog has repeatedly complained that the parties are undermining the transparency that PPERA was supposed to ensure.

The Commission has long called for greater powers to punish transgressors, a position supported by Sir Hayden Phillips in his report on party funding and the Committee on Standards in Public Life.

A Commission spokesman said it could issue fines to parties that submitted quarterly returns late and had done so in the last year with the Co-operative Party, UK Independence Party and Blah Party.

But he added that the Commission was powerless over parties that submitted their returns on time - however incomplete - and later informed it of undeclared donations.

Asked why Mr Hain had been referred to the Metropolitan Police for investigation, an Electoral Commission spokesman said each case had to be evaluated on its merits.

The majority of Labour's late declarations occurred in 2002, a year after the Act's implemention.

The Electoral Commission launched an investigation into Labour's procedures for reporting donations in late 2003 but subsequently found that the party treasurer "took all reasonable steps and exercised due diligence".

It said it would continue to monitor closely for "systemic failure" to meet the requirements of the Act.

Since then Labour has declared donations late in every quarter except one - November 2004. It declared £243,302 late in 2006 and £257,457 in 2007.

The Tories have declared even more late in recent years -£474,351 in 2006 and £291,402 in 2007. The Lib Dems reported £99,263 late in 2006 and £85,798 in 2007.

In November 2006, the Electoral Commission said: "While we acknowledge that local branches of parties, staffed largely by volunteers, may struggle to keep up with the administration of their finances, it is unacceptable that the Labour Party has failed to report a significant amount of donations to the national party on time."

It expressed concern about the issue again in February, May and August last year.

Last November, chief executive Peter Wardle described the reporting requirements as "fundamental in ensuring transparency in our democracy".

"It puts information about how parties are funded in the hands of the voting public," he went on.

"However, we are disappointed that some major parties continue to report donations and loans late, which means that we do not have a complete picture of party funding each quarter. This cannot be acceptable.

"But current law does not give the Commission the power to impose reasonable and proportionate penalties on parties when they report donations or loans late.

"We are continuing to call on the Government and Parliament to legislate for more flexible and effective penalties in the current Parliamentary session."

Labour officials stress that - in common with all parties - it has to rely on many constituency chairmen and women from around the country fulfilling their obligations under the Act, although a central compliance unit chases up shortcomings.

They also say that the "general direction" is towards fewer late declarations and better reporting systems. In his report on party funding last year, Sir Hayden called for the Electoral Commission to be given more scope to investigate non-compliance and hold parties to account.

"Legislation should, where necessary, provide the framework, including a graduated system of sanctions, for the Electoral Commission to become a more effective regulator," he urged.

Another review by the Committee on Standards in Public Life called for the Electoral Commission to take a more regulatory role and the introduction of financial penalties for non-compliance.

The Government said last year it agreed with the "general thrust" of the Committee's recommendations, but they remain under consideration since the breakdown of cross-party talks on political funding in October.