European parliament tightens controls on party funding after several Eurosceptic groups allied to Ukip were found to have misused grants

Ukip and its allies will from now on be asked to provide bank guarantees in order to unlock a lucrative tranche of EU funds, the Guardian has learned

The move could close down a source of EU money and adds to the financial pressure on the new leader, Paul Nuttall, as Ukip’s biggest donor considers withdrawing his support for the party.



A Ukip-dominated group, the Alliance for Direct Democracy in Europe, will have to give the European parliament a guarantee from a bank with a top-notch credit rating in order to gain €1.1m (£920,000) of EU funds. The ADDE, which has 16 Ukip MEPs, including Nuttall, would also see a sharp reduction in advance payments, as EU authorities want proof the money will not be misspent.



The European parliament is tightening controls on political party funding, after several Eurosceptic groups were found to have misused EU grants. In one of the biggest cases of its kind, the Ukip-led ADDE was found to have misspent more than €500,000 of EU funds. Almost 85% of the money had been channelled into Ukip’s 2015 general election campaign, in breach of EU rules banning spending on national politics.



The ADDE has been ordered to repay €172,655 before the end of the year and has lost €248,345 in grants it had been counting on.



To avoid a repeat of this scenario, European parliament officials are demanding unprecedented “risk-mitigation measures” on ADDE’s 2017 grants, according to an internal report seen by the Guardian. The president of the European parliament, Martin Schulz, and other senior MEPs are expected to endorse the plan at a meeting in Strasbourg on Monday night.



The ADDE is eligible for €1.1m of EU funds in 2017, but must have an “unconditional” guarantee, valid for at least two years, from a bank with an A1 credit rating, according to the report. Instead of the usual 80% upfront payment on 1 January, the Ukip-dominated group would only be entitled to a 40% advance. The bank would be released from its obligation once the European parliament’s auditors had checked the party had spent the funds in line with EU rules.

In practice, the clause could choke off this source of funds for Ukip and its allies.



Meanwhile a Eurosceptic thinktank allied to Ukip will see its EU grant frozen, as the parliament investigates alleged fake donations.

The Institute for Direct Democracy in Europe is suspected of having accepted donations linked to contracts it subsequently awarded. The contracts could be seen as a payback for the donation, which the group needed to secure EU funding.

Pan-European parties and thinktanks need to raise at least 15% of their money from outside donors in order to receive EU funds.

Parliament officials have raised “serious concerns as to the qualifications of these donations” and think it is doubtful that money paid to the donors or companies linked to them can be treated as eligible expenditure, the report says. An EU grant worth €268,000 has been suspended pending further investigation.



Although such organisations are meant to promote European public policy, the IDDE has a clear interest in British politics, including areas controlled at national level. One recent article on the NHS attacks healthcare free at the point of use. The unnamed author states that challenging this idea is met with a “hysterical response” and dismisses free at the point of use as a derisory concept equivalent to a “national beer service”.



Ukip’s stance on the NHS has come under greater scrutiny, as Nuttall once called for the NHS to be privatised, although he has recently tried to distance himself from this view.

The EU has been awarding funds to “pan-European political parties” since 2004. Money can be spent on events, policy reports and European election campaigns, but not national politics.

Ukip initially shunned pan-European parties, but in 2014 a majority of the party’s MEPs teamed up with Eurosceptics in other 10 countries to create the ADDE and its affiliated thinktank, the IDDE.



Ukip dominates the ADDE, providing 16 out of 32 members and its president, the East Midlands MEP Roger Helmer.



The decision will not affect Ukip’s access to funding through a separate pan-European group, the European Alliance for Freedom and Direct Democracy, the vehicle for organising Eurosceptic MEPs in the European parliament.



The European parliament has played a crucial, but underrated role, in Ukip’s rise to political stardom, providing a platform, secretariat and funding to Nigel Farage and his team since 1999. Although the importance of EU funding has diminished in recent years, it remains significant. In 2015 Ukip reported £5.8m in donations, while the party benefited from a £4.7m share of EU funds.



Ukip is not the only party caught up the misspending scandals. Two groups dominated by the anti-immigrant Danish People’s party have gone into liquidation after failing to pay back €180,000 in misspent EU funds. A Swedish-dominated anti-EU group, the Organisation for European Interstate Co-operation, recently filed for bankruptcy after being unable to repay €38,000.



“Similar cases must be avoided and it is necessary to safeguard the financial interests of the European parliament in future cases,” states the internal report.