Former home secretary Lord Blunkett has called for a cap on political donations made by companies and stricter rules on “where money originates”.

The Labour stalwart – who is now a member of the House of Lords – told Sky News that he is not against firms or trade unions being able to give cash to parties but “it seems sensible to have an upper ceiling” on how much.

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He also called for the “prevention of smart ways” of foreign money entering British politics.

While political parties are banned from accepting foreign donations, critics say “loopholes” mean people abroad can still give money via a UK-based company.

The issue has been in the spotlight amid reports X owner Elon Musk could give millions to Reform UK.

The world’s richest man was born in South Africa and has American citizenship so wouldn’t be able to donate directly. However he has set up a new company in the UK, X.AI LONDON, which was incorporated and registered with Companies House in December.

Speaking in the House of Lords last week, Lord Blunkett urged the government to act now “to safeguard our future” and “see off those – whether they are malign state actors or multibillionaires – who seek to interfere in our democracy”.

It came amid a debate in the upper chamber which heard calls to ban company donations altogether. Other peers, like Labour’s Lord Dubs, have backed a crackdown on foreign donors giving money to UK pressure groups.

Asked what measures he would support, Lord Blunkett told Sky News he is concerned about funding from outside the UK “for not only surreptitious ways of funding political parties, but the political process as a whole”.

The Labour peer said: “I am not against companies or Trade Unions being able to make donations, but it seems sensible to have an upper ceiling, and therefore a cap, on how much.

“In addition we need much more strictly enforceable rules on where money originates, the legitimacy of the claim that it is ‘domestically generated’ and the prevention of smart ways of substantial donations from overseas.”

What are the current rules?

There is no upper limit on how much an individual or company can donate to a political party, as long as the money comes from a “permissible source”.

This includes a person who is on the UK electoral register, UK-registered companies and trade unions, and UK-registered “unincorporated associations”.

However there has long been concern about the true source of money that comes from companies in particular, as they can donate cash they have received from foreign or opaque sources.

According to Transparency International, almost £1 in every £10 reported by political parties and their members since 2001 has come from unknown or questionable sources.

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The campaign group was one of several behind a report last year which warned that laws aimed at preventing dodgy money and foreign interference entering British politics are “riddled with loopholes”.

The independent experts recommended measures including a cap on donations, reducing the amount parties can spend on campaigning, and requiring political parties by law to identify the true source of funds.

The likes of the Electoral Commission watchdog have also called for a limit on company donations so they don’t exceed its net profits generated in the UK within the preceding two years.

Cap ‘not a priority’

The issue is being pushed in the House of Lords, with peers saying they are able to speak more freely than MPs who may not want to ask difficult questions of their government.

Labour promised to strengthen the rules around donations in its manifesto, but it is not clear what measures are being looked at or when they could be introduced.

Speaking for the government in the Lords on Wednesday, junior minister Lord Khan of Burnley said a cap on donations is “not a current priority” but “strengthening the rules around donations is” – and proposals will be set out “in due course”.

A Ministry for Housing, Communities and Local Government spokesperson told Sky News: “It is vital we protect our democracy from malign actors who seek to interfere in UK elections through illegitimate political donations.

“That’s why the government committed in its manifesto to strengthen the rules around donations to political parties, and work is ongoing to meet this commitment.”