Keir Starmer is set to embark on a fundamental overhaul of the political finance system, starting with an emergency ban on cryptocurrency donations and £100,000 cap on donations from Britons living abroad in a blow to Reform UK,In a hugely significant move, the government said it would bring in the annual cap as well as a moratorium on crypto donations from Wednesday as part of its new elections legislation,It will also consider another 15 recommendations from an independent report by Sir Philip Rycroft, who said there is a risk of foreign influence on UK politics from Iran, Russia and China as well as allies such as the US,The decision is likely to curb future donations to Reform UK, which has received about £12m in the past year from Thailand-based investor Christopher Harborne and funding from some donors based in Monaco,Reform is also the only major political party to accept donations in cryptocurrency, with a website soliciting funding in digital assets.

The independent review by Rycroft, a former senior official, also suggested parliament should consider a cap on all individual donations “if it wishes to restore confidence in the political process and to keep big money out of UK politics”.He said this could be debated during the passage of the government’s representation of the people bill.Whitehall sources said the prospect of a wider cap would be examined as the government looks at all of Rycroft’s more formal recommendations, which also include more stringent checks on donors.Reform’s deputy leader, Richard Tice, accused the government of being “petrified” of his party, and said they would overturn it if in government.He told GB News: “The reality is everything they’re trying to do is to stop the incredible progress of Reform, and cryptocurrencies are a perfectly legitimate way of investing, of earning within the law.

“Once again, they’re putting a cap on donations from overseas electors, stopping crypto donations.We’ve got nothing to hide.It’s quite clear they’re absolutely petrified, terrified of the progress of Reform.”However, Steve Reed, the communities secretary, said the legislation would be applied retrospectively from Wednesday subject to parliamentary approval, as the move was urgently needed to protect UK democracy.He said he was “not prepared to allow any window of opportunity for malign actors” to interfere in the UK’s electoral system.

Speaking at prime minister’s questions, Starmer said the government will “act decisively to protect our democracy – that will include a moratorium on all political donations made through cryptocurrencies,”Unveiling his report, Rycroft said the actions were needed to prevent the risk of foreign interference in British politics, saying donations from abroad were more difficult to trace and regulate,He also said there was a question of fairness when overseas donors were not subject to the same tax requirements as UK residents, recommending an annual cap between £100,000 and £300,000,However, it later emerged that policing the residency requirement for the cap would be left to election officials at local councils, who decide whether a voter is “normally resident” in the UK for the purposes of their address on the electoral register,Whitehall sources said some details had yet to be worked out, including whether further guidance is needed on how to define whether someone is “normally resident” in the UK.

Rycroft’s report cited the threat of influence from hostile foreign states such as Russia, China and Iran as reasons why action was needed to overhaul the system, saying divisive internet commentary about Scottish independence had dropped when Iran’s internet blackout took place.The senior former official also highlighted the risk of influence by actors from allies such as the US, where the billionaire Elon Musk has floated the idea of trying to put money into British politics.Rycroft’s review was ordered by the government after the conviction of the former Reform UK politician Nathan Gill for accepting bribes from Russia-linked sources.In a foreword to his report, he said he was “not pressing the panic button but I am ringing the alarm bell” about the risk of foreign interference in the UK political system.Some of his advice is likely to be debated and enacted in the government’s new elections bill.

His other recommendations include:Requiring third-party campaigners to declare donations all year round, not just election periods, and allowing funding only from permissible donors.More stringent checks on the source of funds from political donors, bringing it more into line with know-your-customer checks in the financial services industry.Preventing donations from shell companies by ensuring funding is from post-tax profits rather than revenue.Requiring foreign consultant lobbyists to join the official register, from which they are currently exempt because they do not charge VAT.Banning foreign-funded political adverts.

Rycroft also suggested parliament should consider lowering the threshold for requiring parties to declare donations, which is set at £11,180, meaning sums below this level are kept private.He made further suggestions that the government could look at the influence of foreign-based betting shifting the odds on political gambling markets and the risk of foreign actors releasing biased polling to sway the electorate at critical moments in the democratic cycle.On the suggested cap on donations from overseas British voters, the report said tracing the source of such funds was more complex than for domestic donations.It said the “investigatory route is more complex for the Electoral Commission and other authorities if malfeasance is suspected” and that those who had chosen to minimise their contribution to the UK exchequer could make “gamechanging donations to British politics”.On crypto donations, Rycroft said he did not think a full ban was necessary but that he was recommending a moratorium to allow the regulators to catch up, as “there is a risk that crypto assets are used as a vehicle to channel in foreign money”.

He advised that the temporary ban should apply to all levels of donations in crypto and end only once parliament and the Electoral Commission were sure the rules were effective.The new measures were welcomed by transparency campaigners but they urged the prime minister to consider even more fundamental reforms to prevent the dominance of wealthy donors in political funding as part of the elections bill.Dr Susan Hawley, executive director of Spotlight on Corruption said the Rycroft review “should be a line in the sand for UK politics”.“It lays bare what’s long been obvious - our politics is too exposed to the huge risks of undue influence of wealthy donors and foreign interference.She added: “There is widespread appetite for reducing the amount of money in election campaigns and action must be taken in the government’s elections bill.

”Duncan Hames, director of policy, transparencyinternational UK also described the report as “clear-eyed about the scale of the threat and his recommendations to tighten the rules deserve to be adopted through the representation of the people bill”.“But even Rycroft acknowledges that his remit didn’t extend to the most fundamental question – whether to cap how much any single donor can give.He recognises that unlimited donations are driving an arms race for funds and invites parliament to debate this during the bill’s passage.Parliament should take him up on that,” he said.Phil Brickell, the Labour MP who leads the all party group on anti-corruption, called for an outright ban on crypto donations.

“Let’s be clear here – foreign interference in our politics is a genuine threat, and one which the government is taking seriously after previous administrations took their eye off the ball.“In particular, as the Rycroft review lays bare, cryptocurrency donations present an unacceptable risk of foreign interference.A moratorium is a welcome first step, but ultimately such donations are a solution in search of a problem, and it is my view that they should be banned outright.”