The government does not believe that the current system of party finance is "fundamentally broken", the House of Lords has heard.

Constitutional affairs minister Lord Filkin said the system of combined donations and state aid remained an attractive option.

The declaration regime introduced by the government made donations "clear and publicly apparent".

But the minister added that the government would "await with interest" reform proposals to be brought forward by the Electoral Commission next year.

"Our position is that individuals are free to make donations to parties of their choice and that there is no cap on the size of those," said Lord Filkin.

The comments came after former Labour MP Lord Campbell-Savours condemned Tory donor Stuart Wheeler following his involvement in the removal of Iain Duncan Smith.

He said the move to unseat the democratically elected leader amounted to "an abuse of power" by the spread-betting millionaire.

"Why is it permissible for Mr Stuart Wheeler, a well heeled businessman, to seek to manipulate parliament and the House of Commons, by demanding that the Conservative Party ditch their leader?" asked Campbell-Savours.

He added that there "would be an outcry amongst the general public" if unions sought to use their financial influence to remove a Labour prime minister.

From the opposition frontbench, Lord Saatchi warned ministers against moving towards a total ban on donations.

"Wouldn't it be better to leave it to individuals to decide whether they want to support a political party," he said.

"Wouldn't it be a great pity if the government regulated the individual donor out of existence leaving only the possibility of complete state control of party funding."

Tory peer Baroness Knight added that donating money to a political cause was "a basic freedom of this country".

"To question their right to give money to that particular party is a dangerous road to tread," she told the House.

Lord Goodhart, a former member of the Neill Committee, said the government should impose a limit on the size of donations.

Capping donations by individuals, companies and unions could be achieved by "encouraging the making of small donations to political parties" through a system of Gift Aid.

Liberal Democrat peer Lord McNally hit out at the Tories' opposition to the move, reminding peers that the party "already take over £3 million in state funding" through the Short Money system.