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New Labour plc?

Recently support for New Labour registered at 23% nationally, the lowest since opinion polling began back in 1938. The party has lost 53% of its membership between 1997 and 2006 and will undoubtedly have lost considerably more since. It is struggling to pay off loans which with interest amounts to an estimate of between £24 to 28 million. Annual running costs amount to £25 million and private donors are understandably refusing to step up to the plate. And why would they? It’s not as if New Labour will do something for them that the Tories won’t.

As for the unions, calls to hold a vote on whether to disaffiliate are becoming more frequent. The GMB have threatned to withdraw funding from 30 Labour MP’s. Stephen Ladyman, vice-chairman of the party described the move as “tokenistic and hard-left”. That the kind of response is not likely to help mend bridges. Meanwhile senior officials in the Labour party, including Gordon Brown, could become personally liable for millions of pounds in debt unless new donors can be found within weeks. Almost unbelievably the New Labour response is to consider changing its status to a company – so that it would limited liability! Which is apt as they are set on privatising everything else.

The party has four weeks to find £7.45m to pay off loans to banks and wealthy donors recruited by Lord Levy, Tony Blair’s former chief fundraiser, or become insolvent. A further £6.2m will have to be repaid by Christmas – making £13.65m in all. The sum amounts to two-thirds of the party’s annual income from donations.

The figures are a conservative estimate as they do not include interest that will also have to be paid. A Labour source said that although the total debt was listed as £17.8m on the Electoral Commission website, the true level, with interest, was nearer to £24m.

The possibility that party officials and members of its national executive committee could become liable is being taken seriously by union leaders, and has been underlined by the decision of equity fund chairman David Pitt-Watson not to accept the post as Labour’s general secretary.

Though he was Brown’s candidate for the post, he declined the offer after receiving independent legal advice that he would be personally liable for repaying the loans and could be bankrupted if Labour’s finances collapsed.

The advice from City solicitors Slaughter and May said unequivocally that leading party officials and members of the NEC would be ” jointly and severally” responsible for the party’s debt.

The reason is that the Labour party constitution is framed like a local club or society, and has no provisionfor limiting the liability of its officials or managers.

A Labour source said: “The party’s constitution is like a five-a-side football club, or the local cricket club. The big difference is that the most club officials and managers could expect to have to fork out is an unpaid bill for hiring the pitch. In Labour’s case, it’s tens of millions of pounds.”

The advice was the sole reason why Pitt-Watson, a committed Labour supporter and former Westminster City councillor, turned down the job this month.

But the reverberations inside the party have been enormous. Earlier this month the GMB union’s executive decided to indemnify its two members on the NEC – Debbie Coulter, the union’s deputy general secretary and a former Labour party conference chairwoman, and Mary Turner, GMB’s president – to protect their homes and savings. A GMB spokesman told the Guardian: “They told the executive they would not continue to sit on the NEC unless they were indemnified. It’s too much a risk for them.”

As leader of the party and a member of the NEC, Brown is also potentially vulnerable. Other prominent members of the committee are Harriet Harman, the deputy leader; her husband, Jack Dromey, the party treasurer; Pat McFadden, minister of state at the department for business; Angela Eagle, exchequer secretary at the Treasury; Dawn Primarolo, public health minister; and former ministers Keith Vaz and Janet Anderson.

Anderson said last night: “I am very concerned and we should look into the situation immediately. If this is the case, I can’t see how anyone, unless they are very wealthy or are indemnified, like in the case of the GMB, can serve on the NEC. I can’t see who would want to be general secretary following this advice.”

The party’s financial plight can be shown by the current negotiations taking place with banks and donors.

The Co-operative bank, whose £2.61m loan is due to be repaid on June 30, has told the party it wants its money back, even though it is getting 7% interest. The bank has asked the unions to offer loans to Labour so the party can pay its debt, but some are refusing to do this. Paul Kenny, the GMB’s general secretary, has told the Co-operative bank it will refuse to help unless the bank withdraws its de-recognition of the union, which represents staff at Co-operative Funeral Services.

Three other loans are due to be repaid on June 30 and July 1. They are a £1.54m loan from Unity Trust bank, also at 7%; a £1m loan at 6.75% from Nigel Morris, founder of the Capital One financial group, and £2.3m from Sir David Garrard, a property developer. He had already extended the loan by 15 months from April 2007.

Labour is hoping that the donors can be persuaded to extend the loan period. Sir Richard Caring, owner of the Ivy and Caprice restaurants, has agreed an indefinite extension of his £2m loan, due to be repaid last March. He has agreed to give 180 days notice if he wants it repaid.
The party’s financial crisis could be compounded this autumn. Three of the biggest unions, Unison, the Communications Workers Union and the GMB have tabled motions at their annual conferences this month calling for members to disaffiliate from Labour. If this goes ahead, Labour would lose £4m of its £19m a year in donations.

The Labour party is said to be investigating whether it can change its status to a limited liability company to protect its officials and NEC members – but such a move could be open to legal challenge until it clears its debts.

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