Labour facing cash flow problems

Labour has admitted facing "acute cash flow problems" as Electoral Commission figures revealed the main political parties owe a total of Sterling Pounds 60m in loans. The figures show the Tories owe Sterling Pounds 35.3m, Labour Sterling Pounds 23.4m and the Lib Dems Sterling Pounds1.1m. The Scottish National Party owes Sterling Pounds 525,393 and Plaid Cymru Sterling Pounds 352,000.

It is the first time parties have had to declare all loans above Sterling Pounds 5,000. While the Tories owe more, Labour loans need to be repaid sooner - Sterling Pounds 1.5m is due now, Sterling Pounds 17m by the end of 2007. In a statement Labour said it was in the midst of a "difficult financial year" and was restructuring to cut costs and to extend the repayment date of most of its loans.

Commercial loan

But biotechnology entrepreneur Sir Christopher Evans, who gave a Sterling Pounds1m commercial loan, and computer tycoon Gordon Crawford, who lent Sterling Pounds500,000, want their money back imminently. Labour said it was holding discussions with them, as "any organisation that is seeking to manage its cash flow in difficult circumstances" would do. Law change Sir Christopher has said repayment is expected "within a matter of months" and a further Sterling Pounds 17m from Labour lenders is due to be repaid by the end of 2007.

The Conservatives owe more than Labour, but say almost Sterling Pounds16m was spent on buying the freehold of the party's former headquarters in Smith Square - which it now hopes to sell.

A change in the law in September means all loans of Sterling Pounds5,000 and above to main political party offices have to be declared, bringing rules for loans into line with those for donations.

Previously any loans made with a commercial rate of interest did not have to be declared. Former Labour Party treasurer Lady Prosser told the BBC that the debt was a result of new legislation. She said some major donors were "rather shy" about being named - for fear of being accused of "giving money to buy something".

The figures showed that in the third quarter of 2006, the Conservatives received donations worth Sterling Pounds 4m, Labour Sterling Pounds 3.2m and the Lib Dems Sterling Pounds1.1m. 'More influence' Electoral Commission chief executive Peter Wardle said the parties had made "good progress" in reporting loans but some had struggled to report donations on time.

Impact on democracy

Labour declared Sterling Pounds 207,155 of donations late, the Tories Sterling Pounds 168,259 and the Lib Dems Sterling Pounds 23,181. Lib Dem chief executive Lord Rennard said the size of the amounts owed by Labour and the Conservatives could have an impact on the health of democracy.

He suggested that if people loaned money, rather than donated it, they could have more influence as they could threaten to call in their loan if they did not agree with a particular policy.

Conservative chairman Francis Maude said 90% of Labour's donations in the quarter had come from unions, showing "how Labour's dependence on the unions continues to grow". "Who knows what is being promised behind closed doors for the latest slew of cash revealed today?" he said. Meanwhile Labour Party chairman Hazel Blears has written to Francis Maude, questioning whether all Tory loans were received at commercial rates, and whether all lenders are based in, or trade in, the UK. Labour has said they would be asking the Electoral Commission to examine individuals' loans to the Conservatives.

The Electoral Commission figures come as police investigate whether party donors received honours in return for cash. All involved deny wrongdoing.

The cash-for-honours investigation began early this year after it was revealed the Labour Party had been given secret loans ahead of the last election, and that some of those lenders had subsequently been nominated for peerages. The inquiry has been widened to look at the other main parties.

Police have spoken to 90 people, including some of Tony Blair's closest advisers, and, from the Conservative side, former leader Michael Howard. Metropolitan Police Assistant Commissioner John Yates has said he hopes to present a report to the Crown Prosecution Service in January. No-one has been charged.

-BBC