Time for state to fund political parties, says James Purnell

Britain's leaders should "bite the bullet" and endorse state funding of political parties as part of an overhaul to remove "big money" from the system, the work and pensions secretary, James Purnell, declares today.

In the latest high-profile contribution to the Guardian's A New Politics series, the cabinet minister calls for individual donations to be capped at a few hundred pounds – a move that would transform Labour's links with the trade unions.

Making the first intervention by a member of the cabinet on the contentious issue of party funding, Purnell says: "We need to take big money out of politics." He writes: "Amidst the current anger at politicians and politics we must bite the bullet on state funding for political parties – alongside cutting the overall amount the taxpayer spends on politics."

Within a reduction in the overall amount spent, Purnell would like to see the state fund staff in constituencies and allow greater work on developing policy.

Capping donations would curb the power of the likes of Lord Ashcroft, the Tory deputy chairman, who is using his fortune to finance candidates in marginal seats. But it would also change – and critics will claim dilute – Labour's relationship with the unions. Purnell suggests the bulk of union donations could be made through the political levy paid by members, who would have to give consent. And tax relief of 100% should be provided on small donations to encourage parties to seek them in the way Barack Obama did in last year's US presidential election. "Such a system would pose questions for all political parties, including, for Labour, how we maintain our historic and vital link with the trade union movement," Purnell writes. "Labour would have an incentive to properly engage with the hundreds of thousands of individual trade unionists who are linked to our party."

"The Conservatives too would have to fundamentally reassess how they raise and spend resources ... this is an uncomfortable but urgent debate."

Purnell's opening of a new front comes as reform momentum continues to build. Labour's deputy leader Harriet Harman tells today's Guardian Weekend magazine she is "more positive than negative" about health secretary Alan Johnson's push for a referendum on electoral reform. Harman says the expenses scandal is a "moment to be seized" to reform politics.

Today Europe minister Caroline Flint comes out in supports of a "cross-party mechanism" to consider issues of constitutional reform that would involve the public. Flint's suggestion, in an article for the Progress website, is something Downing Street has been resisting, preferring justice secretary Jack Straw's call for cross-party talks between the leaders. Progress, the centre-left campaign group, is launching a drive for a "citizens' convention". Forty activists and candidates have signed a petition supporting the idea, including academic and former Labour MP David Marquand and former minister Stephen Twigg. The idea is also said to be gaining ground inside the cabinet.