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Money, money, money brings politicians down time and again. People expect corrupting cash from the Tories, with their last cabinet of zillionaires umbilically linked to finance of every kind, but voters expect better from Labour. The first painful dent in the moral armour of Keir Starmer’s cabinet was the revelation of freebies he and others accepted in clothes, glasses and tickets. There was a chance then to get on the front foot, using that minor but shabby embarrassment to declare a great clean-up of the sewage inflow of influence on politics from mega donations. But No 10 missed it.

The dispute over Labour’s alleged failure to declare sizeable support from the campaign group Labour Together offers another opportunity for Starmer to call time on big money in politics. The Tories have called for the electoral commission to conduct a new investigation into this week’s allegations – including that Labour failed to declare staffing costs it received from Labour Together that covered McSweeney’s salary. In 2021, the watchdog fined Labour Together £14,250 for failing to properly declare sizeable donations, which the campaign group blamed on an “administrative error”. Labour has clarified this week that McSweeney’s salary was paid by Starmer’s leadership campaign in 2020, not Labour Together.

But that’s not the point. Few will follow tortuous points of law. Every time people are reminded of eye-watering sums swashing about in our politics, they rightly think it stinks. And it does, even when all the rules are followed. There’s no way of knowing what, if any, influence donations have, but the public understandably assumes that some donors expect something in return. Even if they asked for nothing in return, why should the preferences of the wealthy swing our elections?

Cash for honours has contaminated parliament since the dawn of time. “Dark money” finds loopholes in the law. According to analysis last year, almost £1 in every £10 donated to parties and politicians comes from unknown or dubious sources: cash from companies that have never turned a profit, from unincorporated associations that do not have to declare their funders and banned donations from overseas donors via intermediaries, enters the system.

A £75,000 donation to Robert Jenrick was mired in controversy after it was revealed that the donation was given by a company that financed it through a loan from a business registered in the Virgin Islands (Jenrick said the donation was “perfectly legal and valid”). But never mind what’s hidden when broad daylight is no disinfectant to the influence wielded by a rich minority. Between 2001 and 2021, a fifth of all donations to UK political parties came from just 10 big donors. While cash for honours is illegal, wealthy Conservative benefactors who donate more than £3m to the party have found themselves getting seats in the House of Lords.

The fright of Elon Musk’s rumoured threat to donate $100m (£78m) to Reform should be enough to jolt the government into action. Musk can legally do this via the profits from his UK company. There is nothing to prevent a single man abroad from nearly doubling the total donations to UK political parties, which stood at £100m in 2024. The Committee on Standards in Public Life has previously called for an annual donation cap of £10,000 for individuals and organisations, covering expat donors too. The cash that flows in from them needs to be registered: currently, as Justin Fisher writes in Political Quarterly, there is no data available on how much they donate.

Capping all donations to £10,000 would require state funding to fill the gap. Party membership fees will never cover what parties need to run headquarters and public meetings, recruit policy researchers, administrators, local organisers for elections and selections, conferences, leaflets and social media. Democracy relies on party volunteers, but they need professional organisers, too. Taxpayers may not like it, but put the choice to people straight: would you rather a small subvention from the state of around £100m, or in this time of power-crazed mega masters of the world’s wealth, will you leave it to the likes of Musk to buy up political parties as they buy up everything else? Few people think democracy should be up for sale, which is why a majority of the public supports a cap on party donations. That £100m is a tiny price to pay for politics uncontaminated by cash.

Labour’s reliance on trade union funds need be no block on reform. Making all donations personal, not institutional, wouldn’t break the fundamental link between Labour and the unions that created the party. Ending unsavoury threats by unions to defund Labour would be cleansing for both. Sharon Graham, the general secretary of Unite, Labour’s biggest single donor, does her union, unions in general and the Labour party no favours when, like an old family matriarch, she threatens to cut funding to the party when it displeases her. Labour’s far-reaching workers’ rights bill is constantly slandered by the right as payback for union funds: it isn’t. It’s strongly supported by cabinet, party, and above all the public – but the sniff of “union paymasters” harms one of the government’s best policies.

Canada limits yearly donations to $3,450 per voter. The rest of the bill is picked up by the state, which pays for 62% of the cost of running parties. That’s what clean politics looks like (though even on that low limit, campaigners protest that donations are too swayed by the wealthy). Labour should take heed. If it makes a clean break, and goes with the grain of public opinion, it might begin to dispel public disgust with politicians wooing the rich.

How to do it? Public funds could be allocated according to the public vote at the election. (Reform got 14.3%). Helena Kennedy’s power commission a few years back contained an ingenious plan, where every voter would tick a separate box on the ballot paper to allocate their share of public funding to the party of their choice: with so much tactical voting, this would give funds to minor parties. However it’s done, now would be a moment for boldness. Labour is low in the polls, and risks getting caught up in a sleaze scandal. Its route out of this Westminster morass should be a plan to clean up politics.

• Polly Toynbee is a Guardian columnist