Labour will end the use of “dodgy front companies” that hide the source of dark money for political donations as part of its sweeping elections bill, which will give votes to 16-year-olds and pave the way for “opt-out” voter registration.
Gifts and hospitality for politicians sponsored by foreign states or companies will also be severely curbed, the Guardian understands.
The government also intends to put new restrictions on cryptocurrency donations and the size of foreign donations, a key concern of Labour MPs about money that may be funnelled to Reform UK.
Elon Musk, the billionaire X owner, was once reported to have been interested in a multimillion pound donation to Nigel Farage’s party, though later said he had failed to be impressed by the Reform UK leader.
The communities secretary Steve Reed told the Guardian the bill introduced to the Commons on Thursday would be “the biggest reset to our democratic system since the second world war”, adding potentially millions to the electoral roll and introducing tough new laws to stop foreign donations being hidden in shell companies.
Pilots will begin for mass voter registration, giving voters the chance to register automatically when they interact with other government services, such as getting married or changing their address.
But pro-democracy campaigners have said the bill should introduce full automatic voter registration using national insurance numbers – and have criticised that it does not restore full independence to the electoral commission.
Tom Brake, the chief executive of Unlock Democracy, said the reforms passed “the Musk test” but said the government could go further – including a donations cap, saying there was “outsized influence of a handful of domestic mega-donors … An annual cap on donations from individuals and companies would begin to address public concern that politics can be bought.”
Reed said the political financing bill would help safeguard democracy under threat from malign foreign influences. “Under the current rules, it’s too easy to game the system using dodgy front companies to make political donations,” he told the Guardian.
“New firms registered today – owned by anyone, funded from anywhere, and without even a single day of trade – are allowed to finance our political parties. That can’t be right. So we are closing this loophole by making firms go through stringent tests to prove their connection to the UK before their donation is allowed.”
Firms must prove they are headquartered in the UK, majority owned or controlled by UK electors or citizens and have generated sufficient revenue to cover the donation.
The bill will also stop foreign companies offering high-value gifts to MPs, who will not be able to accept them unless they are below £2,230. There have been multiple instances of politicians accepting luxury gifts or hospitality worth significant amounts from foreign states or businesses.
“The flow of foreign cash into British politics ends here,” a departmental source said. “Politicians won’t be able to take gifts above a very low threshold. This will protect our democracy from interference and make it more transparent than ever.”
The bill is expected to be amended during the parliamentary process to take into account the review by Sir Philip Rycroft into political interference.
Departmental sources said this would be likely to include new restrictions on cryptocurrency and the size of foreign donations. The crypto investor Christopher Harborne recently donated £9m to Reform UK – though the reforms currently in the bill would not prevent similar donations because Harborne, who is based in Thailand, is a British citizen.
Reed said he was concerned about the ease with which foreign actors appeared to believe they could influence UK democracy. “I know the Guardian’s readers care deeply about our democracy and all it stands for, as do I,” he said.
“But those long-held principles are increasingly under threat – as shown by the shocking case of Nathan Gill, the former leader of the Reform UK party in Wales, who took bribes to help the Russian government.”
Labour had widely been expected to introduce automatic voter registration, but instead will pilot measures to register voters when they engage with government services.
Polling booths could operate in train stations and supermarkets, with local authorities given the chance to undertake new pilot schemes for accessible voting.
The government also plans to press ahead with votes for 1.7 million new voters – 16 and 17-year-olds – the biggest expansion of democratic participation in generations, but a move likely to face significant opposition from the Conservatives and Reform UK.
The bill will also toughen measures to protect political candidates, campaigners and electoral staff from abuse and intimidation, including tougher sentences for offences involving electoral intimidation.
Darren Hughes, chief executive of the Electoral Reform Society, said there was more the bill could do to clamp down on dark money in politics. “After the last weeks, the public will be rightly concerned about the influence that money and the super-wealthy can exert on our politics. The current rules are outdated and riddled with loopholes that help donors evade transparency. That only damages trust in politics.
“This bill is an opportunity that must be taken to ensure dark money doesn’t corrupt our democracy. There also needs to be a donations cap to prevent huge sums pouring into politics and distorting it towards serving special interests rather than the national interest.”
