I revealed last summer that Labour had failed to persuade seven millionaires – who had lent it large amounts of money ahead of the 2005 election campaign – to drop those loans.
As I wrote at the time:
Under an agreement struck 18 months ago, two of the millionaires converted their loans into donations, two were paid off and seven agreed to reschedule their debts: Rod Aldridge, Richard Caring (pictured), Sir David Garrard, Nigel Morris, Chai Patel, Barry Townsley and Derek Tullett. Another lender, Sir Christopher Evans, had already been repaid in full.According to records at the Electoral Commission, the remaining millionaires agreed to waive interest payments until after the forthcoming general election, providing some relief for Labour. That period comes to an end in July, at which point the loans return to commercial terms at an interest rate of 6.5 per cent – or £578,500 a year. Over a five-year parliament that is equivalent to £2.9m….
The rate of 6.5 per cent is higher than the interest charged on loans from Labour’s long-term lender the Co-operative Bank.
One of the millionaires told me that the debt schedule is not straightforward as it included annual capital repayments as well as interest. “Think of it like a mortgage, it won’t necessarily be the full sum being paid back in 2015,” he said. Nevertheless, this does still appear to be a cloud hanging over the Labour party, as Tribune contributor David Hencke argues on his blog* today. (David suggests that the rolled-up interest is £2m, more modest than my £3m estimate).
Labour insiders might argue that this is not as drastic as it seems and that predictions of the party’s financial crunch have been proven wrong year in, year out.
According to this chart from the Electoral Commission, Labour ran a surplus in 2007 (£7.5m), 2008 (£8m) and 2009 (£2m). Yet parties often slip into the red during general election years; in 2005 Labour spent £49.8m and only received £35.3m, a gap of £14.5m. Last year’s campaign was run on a relative shoestring but it will be interesting to see how the 2010 accounts look when they come out this summer. And with individual donations to Labour drying up under Ed Miliband – unions provided 88 per cent last quarter - the funding issue doesn’t look likely to disappear any day soon.
* Hencke also points out that Sir Richard Caring has given £140,000 to the Tories in gifts and prizes for events, which may have effectively come out of Labour’s interest payments.