How political donations can backfire

Frank Hester lived in relative obscurity despite being the UK Conservative party’s biggest donor — until, that is, he became embroiled in an alleged racism dispute.

The 58-year-old founder of software company The Phoenix Partnership, with an estimated fortune of £415mn, hit the headlines in March, after it was reported that he said at the Leeds headquarters of his company in 2019 that the sight of former Labour MP Diane Abbott made him “want to hate all black women’’.

The controversy raised important questions about racism in the upper echelons of Britain’s business and political elite. But, for wealthy individuals across the globe, it also presented questions regarding the benefits of political donations as well as the potential risks. Hester has made £10mn in donations to the Conservatives.

Gina Miller, the financier who is standing at the next UK general election as leader of the True & Fair Party, says: “Controversies such as the Frank Hester scandal leave a very bitter taste about donors and the political parties that benefit from donations, but it is important to remember that this is only a threat to people and parties that have something to hide.” 

Billionaire businessman John Caudwell gave £500,000 to the Conservative party before the 2019 general election. When asked if the Hester controversy would put him off making another political donation, he told FT Wealth that it would not. 

“But individuals donating substantial funding to a political party must accept the public scrutiny that comes with it,” he warns.

In a statement issued by TPP, Hester accepted he was rude about Abbott in a private meeting several years ago but “his criticism had nothing to do with her gender nor colour of skin”. The statement added that Hester “wishes to make it clear that he regards racism as a poison, which has no place in public life”.

The furore is not just a cautionary tale for the wealthy in the UK, however. Large sums are donated to political groups across the world by rich individuals and the Hester situation has not gone unnoticed.

“Politics has become very divisive and so you have to be careful who you back, if you support anyone at all, because it can backfire,” says an adviser to a wealthy US family, who wanted to remain anonymous. “You also have to make sure your own house is in order,” he says, adding that donations made by companies can also go wrong and must be carefully thought out.

Indeed, in the aftermath of the Capitol building riots in Washington, in 2021, a slew of large US companies, including Citigroup, American Express and the Marriott hotel chain, said they would halt donations to Republicans who voted to challenge Joe Biden’s victory. The groups stopped their contributions after supporters of Donald Trump forced their way into the US seat of government, in violent scenes that left five people dead.

Candi Wolff, head of Citi’s global government affairs, wrote at the time: “We want you to be assured that we will not support candidates who do not respect the rule of law.” 

Despite the risks that come with backing a political party, both Miller and Caudwell are quick to point out that they believe donations have an important role to play in politics and that the Hester row should not hinder that. 

Caudwell, who founded the now defunct mobile phone company Phones4U, says: “There is nothing wrong, in my opinion, with donating to a political party because of a strong personal belief that the party has the best long-term interests of the country and its people at heart, and the ability to deliver on the promises they make.”

Miller, who gave £10,000 to the Labour party before the 2015 election, adds: “People donating their own money to support parties that reflect and fight for their own values should have nothing to fear.”

What they also both agree on is that contributions should be completely transparent and that dark money — where the source is not disclosed — should not be allowed to influence political opinion.

This issue came to the fore in 2022 in the US when The New York Times, jointly with investigative news outlets ProPublica and The Lever, revealed that a right-wing group controlled by Leonard Leo, a legal activist who advised Trump on his Supreme Court choices, was the beneficiary of a $1.6bn donation from Barre Seid, a 90-year-old manufacturing magnate. The money was funnelled through a series of opaque transactions over a period of two years.

Politics has become very divisive — you have to be careful who you back, because it can backfire

As a former adviser to Trump on judicial nominations, Leo helped cement the Supreme Court’s conservative majority, which eliminated constitutional protections for abortion rights. Leo’s Marble Freedom Trust is not required to publicly disclose its donors. 

Speaking specifically on the situation in the UK, where political parties accepted £93mn in donations last year, Caudwell says: “The public have every right to know the revenue sources of political parties and the Electoral Commission, which regulates political finance in the UK, has rules for these types of donations. 

“We need to be focused on accountability and transparency, not enabling donors to shield themselves from scrutiny. To that end, now might be an ideal time to review whether the current rules are fit for purpose.” 

Miller agrees: “The UK committee on standards in public life proposed an annual limit on donations to prevent an ‘auction of influence’ and access to senior figures at Westminster, but that has sat on the shelf for 15 years and been ignored by all the main status quo parties.

“There should be a cap on how much can be donated on an annual basis or parliamentary term. At the True & Fair Party, we believe that the cap should be set at £100,000 [per donor] per parliamentary term.”

Hester gave £5mn to the Conservative party in May 2023, with a further £5mn donated through his company in November last year. TPP also donated a £15,900 helicopter flight to prime minister Rishi Sunak late in 2023. 

However, a report from Tortoise Media suggests Hester gave a further £5mn, more than was previously known and written about by the media. The discrepancy is reported to have occurred because the register is only updated every quarter, resulting in a lag between money being received and publicly declared.

If the £5mn is confirmed in the next Electoral Commission update in June, it would take total donations for the past year to £15mn from Hester, whose company has won more than £400mn of NHS and prison contracts in the past eight years. The Conservative party declined to comment.

Without transparency and, ultimately, curbs on donations, we will have politics for sale

Some worry that the significant growth in UK political donations in recent decades is having an undue influence on government appointments and decisions. In 2022, the Cage Research Centre at Warwick University published a paper examining political donations to UK parties over the past two decades, something it is currently updating. That research found that donations have almost trebled over the 20-year period, rising from £41mn in 2001 to £101mn in 2019. The study also showed that individual giving had risen substantially, with 60 per cent of donations now coming from private wealthy individuals. This compares with 40 per cent before the late 2010s.

Mirko Draca, director of the Cage Research Centre, told FT Wealth: “Along with this increase in donation amounts, there has been an emergence of a group of high-value donors that we term ‘super donors’.” 

With Hester in mind, he suggests that these individuals need to think with great care about their donations: “In the current very polarised political climate, the trade-off involved in making donations has changed. Large donations will invite scrutiny from partisans on the opposing side. Donors have to be ready for their statements and records to be turned inside out.”

Traditionally, UK donations are seen as relatively unimportant when compared with the US, the research paper noted. But the “significant increase in party donations we see over the last 20 years suggests they are having a very real impact on how the UK democratic process works”.

For campaigners, the answer is simple: the rules must be tightened. However, it is felt the opposite is happening in the UK after the level at which donations are required to be declared rose from £7,500 to £11,180, at the start of the year. 

Jess Garland, director of research and policy for the Electoral Reform Society, says: “Without transparency and, ultimately, curbs on donations, we will have politics for sale. With more than one in five nominees for seats in the House of Lords over the past decade being party donors, there are many questions we should be asking about the role of money in our politics. 

“The greatest influence should be wielded by the voter, not those with the deepest pockets.”

Miller adds that political parties “will, of course, be judged by the company they keep, and rightly so, but it also works both ways”. Wealthy individuals, such as Hester, would be wise “to remember that”, she says.

This article is part of FT Wealth, a section providing in-depth coverage of philanthropy, entrepreneurs, family offices, as well as alternative and impact investment