State funding of political parties should be introduced to halt growing voter cynicism, an influential think tank has said.

The left-leaning Institute for Public Policy Research recommends state funding based upon the level of activity of volunteers and activists, with a £5000 cap on all individual donations to parties.

The report also suggests a cap on annual spending of £20 million, which would fall to £15 million over a five-year period.

Labour Party chairman Charles Clarke yesterday indicated the government was contemplating a u-turn over tax relief for party donations, having rejected such a move in 1998.

"I don't think it [tax relief] is an unreasonable thing. We haven't gone down that course in the past but we are thinking about it. I am personally sympathetic to trying to find something in that area," said Clarke.