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Labour heads for financial collapse

Party in crisis with £24m debt as donors back off in wake of poll disaster and funding scandals

Gaby Hinsliff 2008 06 22


After a year of Gordon Brown's leadership the Labour Party is in financial crisis, it emerged last night amid warnings of cutbacks that seriously threaten Labour's ability to fight the next general election. Loyalists including the venture capitalist Sir Ronnie Cohen and the millionaire former science minister Lord Sainsbury are understood to have bailed the party out temporarily in the past few weeks - its accountants had been threatening not to sign off the accounts at the end of this month, which could have ultimately tipped the party into insolvency. Cohen is understood to have donated £100,000 while Sainsbury has pledged to underwrite certain future staff salaries. However, Labour's new general secretary, Ray Collins, has admitted its finances remain in a 'parlous' state. The party is up to £24m in the red, with donors reluctant to give, thanks to Brown's collapse in the polls and a series of police investigations into party funding. The party is locked in what one source described as 'tortuous' attempts to defer a series of multi-million pound loans due to be repaid soon.

Insiders said that Labour now hoped to be able to cover its immediate costs, but only by leaving 'not a penny' in the bank for a general election campaign. It is relying on volunteers on the ground because it cannot afford paid staff, leaving parliamentary candidates hopelessly outgunned by Tory opponents, while party staff fear redundancies if new donors are not found. The news comes as it emerged that David Cameron is facing a second embarrassing inquiry into the finances of a shadow cabinet minister, just weeks after the furore over his party chairman, Caroline Spelman, paying her nanny on Commons expenses.

The Electoral Commission, the government watchdog, confirmed it was 'in correspondence' with defence spokesman Liam Fox, a right-winger who ran for the Tory leadership in 2005, over whether he should have declared three gifts from wealthy City backers made to his private office. The donations were registered with the House of Commons' register of members' interests but not the Electoral Commission, and Tory officials admitted yesterday that the money would now be belatedly declared to the Commission too. Fox declares unspecified gifts in the latest Commons register of MPs' interests from five people - hedge fund millionaire Michael Hintze; futures broker Stanley Fink; private equity chief Jon Moulton; Alan Howard, chief executive of futures brokers Man Group; and councillor Michael Batt. But only donations from Moulton and Batt - who gave £50,000 and £7,000 respectively - were declared to the Commission. A spokesman for the Conservatives admitted that any gift over £5,000 to shadow cabinet ministers 'should be declared centrally to the Electoral Commission by the party. These donations given to Dr Fox will therefore be declared at the earliest opportunity.'

Fox said all the donations had been made public via the Commons register, adding: 'I do not believe I have breached any rules but will, of course, wait for the Commission to reach its own conclusions.' A Tory official said any mistake had been made at party headquarters, not by Fox.

By contrast, Collins warns in an article for this week's Tribune magazine that Labour is in such financial trouble that there is 'no prospect of extensive recruitment prior to the next European, local and general elections' which are so critical to Brown's fortunes. Party sources say one reason Labour did not field a candidate in David Davis's by-election is because it could not spare the £70,000 needed for a campaign. Bhavna Jhosi, a Labour parliamentary candidate for the Central Suffolk and North Ipswich seat, said funding problems were affecting the grassroots activities: 'There are definitely fewer resources; we have less staff and everybody is doing more work. We are constantly having to fundraise. It's hard going up against the Tories when you haven't got the money.'

Meanwhile, new proposals to be finalised this week could see MPs receiving a standard allowance of £40,000 per year on top of their salaries to pay for a second home in London. The fixed allowance would mean MPs could avoid having their individual expense claims scrutinised. A committee of senior MPs, chaired by the Commons speaker, Michael Martin, has drawn up two other options to restore public confidence in the expenses system following several recent abuses: to impose a £24,000 ceiling linked to an MP's attendance at the Commons or retain the current system of submitting individual receipts but with greater scrutiny.

See also
Labour awaits electoral wipeout 
Is the Labour Party in meltdown? 

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