It formed an important part of the constitutional reform programme implemented by the 1997 Labour Government, building on the Registration of Political Parties Act 1998 (c. 48) which was passed two years earlier.

The requirement for parties to register with an official body, if they wished to be named on ballot papers, was the result of a fairly wide acceptance that the finances of political groups should be regulated to reduce the perception of underhand dealings.

This built on the provisions of the Registration of Political Parties Act 1998, passed amid concern about voters being fooled by misleading ballot descriptions.

[3] The amount permitted to be spent by third-parties during Parliamentary elections to support or oppose candidates was increased from the previous limit of £5 (which had been held to be an impermissible restriction on freedom of expression by the European Convention on Human Rights in the case of Bowman v United Kingdom) to £500.

In December 2006 Prime Minister Tony Blair and politicians of other parties were questioned by police as part of their investigation into the Cash for Honours affair.

[citation needed] The Government later changed the law to require the declaration of all forms of loan, and asked a former Clerk of the Crown in Chancery, Sir Hayden Phillips, to undertake a fundamental review of party funding arrangements.