David Cameron is reported to have said to a gathering of donors at the Conservative Party conference:
“Look, I have no problem giving honours to donors,” David Cameron declared. “They are doing a public service, in my view. Otherwise, we’d have to turn to state funding of our political parties, which would just add to our deficit and be totally unacceptable.”
On the face of it, I find myself agreeing with him. Parties are essential to the democratic system ticking over, parties need money to run, parties need to get money from somewhere. I think there's an excellent case for state funding of parties but if in the meantime we have cash in one set of hands and in the other set of hands we have honours that people like (but don't really mean that much) that seems a fair deal.
There is the little snag here: selling honours is a criminal offence under the Honours (Prevention of Abuses) Act 1925 and you have to wonder if the "giving me money is a public good and people should be rewarded for contributing to the public good" line is really enough not to fall foul of this. The offence was introduced after Lloyd George was quite brazenly selling off honours for party funding (his scheme went so far as to have "a published tariff with a knighthood being available for £10,000, a baronetcy for £30,000, with a peerage title costing upwards of £50,000"). The big trouble is peerages as these bestow some actual power with a seat in House of Lords - but assuming the Lords was abolished for a minute, what's the objection? There is the perception of corruption when rich people give things to parties and get nice things in return, but does a knighthood really have much utility beyond feeling quite nice?
A party system funding solely by the rich gives the wrong incentives but we could refine this to give everyone an incentive to get involved: why not open it up and officialise Cash for Honours by making the process a lottery? People have given money into the various party pots - pick a few pounds out and bestow a few honours that way. If you operate a few different pots for different donation ranges, a fair amount will end up with the same set of wealthy donors, but it will also introduce a chance that everyday party supporters could be rewarded for the noble work of ensuring our political system's wheels stay greased.
I'm being a little facetious here and this process would raise all kinds of questions (a knighthood for donating to the BNP?) but I think the core question is a good one: why is the idea of the government using its ability to bestow honours to fund these vital democratic functions inherently bad?