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Losing like Labour

IT NEVER rains but it pours. The Labour Party is now in a financial as well as a political crisis. The party has five weeks to find £7.45 million to repay loans, some of which Lord Levy negotiated when he was the party's main fundraiser for Tony Blair. A further £6.2 million must be repaid by Christmas, making a total of £13.65 million . In theory, if these loans are not repaid, the Labour Party could be made bankrupt.

In that case, senior members of the party would be 'jointly and severally' liable for the repayment of the debt. That would mean these officials, probably including Gordon Brown himself, would be held responsible, as individuals, for the whole of the debt, possibly amounting to some £24 million , including interest. All of them are potentially threatened with insolvency.

I do not, in fact, believe Labour's creditors will throw the party or the Prime Minister into bankruptcy. No doubt many of the creditors do want their money back, but all of them are, or were, active supporters of the Labour Party. Many of the loans were made to help it win the 2005 General Election.

A respected, if somewhat old-fashioned, financial institution, the Co-operative Bank, has asked for its money back, which is apparently due for repayment by the end of this month. Its loan amounted to £2.6 million . But the Co-operative Bank is not really likely to make Labour bankrupt, let alone a Labour Prime Minister. The worst it is likely to do is to put up the interest rate on the lending. Even that would make Labour's financial situation more uncomfortable.

However, the party's debt is already a major embarrassment. It is bad for its image. As a government, Labour traded for years on the supposed prudence of Brown. Now the nation's Budget deficit has reached a point at which the Government has little room to manoeuvre through the recession. The party's finances are in worse shape than the country's. There has not been prudent management, either for the nation or for the party.

The Labour Party has an annual income of about £20 million , mainly provided by the trade unions. Any businessman knows that it is not possible to repay £24 million of debt out of £20 million of gross revenue.

By 2010, there has to be another General Election; it cannot be postponed beyond that date. Labour will need to find the money to fight it. Modern elections — as in the United States — are becoming much more professional and much more expensive. A preliminary estimate for Labour's expenditure in the 2010 Election could hardly be put lower than £20 million , but that is £20 million that Labour has not got and is not likely to get. In the meantime, funds will roll in to the increasingly popular Conservative Party.

I rely on the YouGov poll as the most reliable of the opinion polls. YouGov has certainly performed well in recent elections, particularly in the election for Mayor of London.

The latest YouGov poll showing the parties' public support gives figures of 47 per cent for the Conservatives, 23 per cent for Labour and 18 per cent for the Liberal Democrats. These are the worst figures for Labour since polling started in the early Forties. If the mood of the voters does not change substantially before the next Election, the Tories will win by a landslide.

Such figures do not look promising for Labour fundraising. People do not put their money on losers. After 1997, when Labour won by a landslide, Conservative fundraising became extremely difficult. People thought the next Tory government was a long way off and it would be a waste of money to help fund a party with no early hope of winning. When William Hague appointed Lord Ashcroft as the Conservative Party's senior treasurer in 1998, Ashcroft inherited a load of debt incurred in the 1997 Election campaign.

Before 1994, when Tony Blair became leader of the party, Labour relied on the trade unions for most of its money, as it again does. Blair changed the ideology of the party. He created New Labour, which appealed successfully to the middle classes, but moved away from the trade unions, their members and their policies.

New Labour had to be funded. Some money continued to come from the trade unions but large donations also came from Left-wing million aires, some of whom were given peerages. Lord Levy organised this individual funding with considerable skill. Blair gave it his time, his support and his hospitality.

No one could now revive the old system. Loyalties have changed. The trade unions have only half the membership of the Seventies; they are cutting their costs rather than raising their donations. The task of helping repay Blair's and New Labour's debts is not one the unions relish.

The trade unions are now divided. There is a group that is still prepared to help fund the Labour Party, but only on their own terms. They want a party that will defend union interests and support union policies. Such a party would appeal to Labour's core voters, but might alienate the middle-class electorate who built Blair's majorities. That would take the party back to Old Labour; it might again be unelectable.

Other unions are asking themselves whether or not trade unions ought to be affiliated to any political party. Their rank-and-file members are independent-minded. They make up their own minds about which party to support, as the voters did in the Crewe and Nantwich by-election. These unions do not take their members for granted in the way union leaders could in the Seventies.

It is beginning to look as if the 2005 General Election may have been Labour's equivalent to the Conservative victory in 1992 — an Election it would have been better to lose. It has left Labour with a debt it cannot repay and involved it in the false promise of a European referendum — a broken pledge that is not forgotten. And now there will be no money to fight the much more difficult Election of 2010.

Lord William Rees-Mogg is a former editor of the Times. This column first appeared in the Mail on Sunday