If the Labour Party were a business, it would have gone to the wall. Its funding crisis began in March when the 'cash for peerages' row erupted. It emerged that New Labour had been 'lent' nearly £14 million by 12 wealthy supporters, four of whom have been proposed by the PM for a peerage. A media frenzy and even a police investigation ensued, and rich donors shied away. In August, the Electoral Commission's quarterly register of donations revealed that Labour owed £28 million in loans but from April to June had received just £3.4 million in donations. Negative cashflow has forced Labour to hold up its begging-bowl to the unions, which now provide 75% of total funding (up from 60% last year). Dependence on union money is an embarrassing anachronism for a party that has long since cultivated its pro-business credentials.
In July, a Labour party spokesman said: 'The party is in a stable financial position despite the period after a general election always being extremely challenging.' (The last election had broken all spending records). But the cash-for-peerages debacle has been more tricky to dismiss, particularly after the arrest of chief party fundraiser Lord Levy. Said PM Tony Blair: 'Nobody in the Labour Party to my knowledge has sold honours or sold peerages. The fact that is sometimes excluded from the public's mind ... is that there are places in the House of Lords that are reserved for party nominees for their party supporters.'
THE STRAIGHT TALK
With party membership dwindling, a paucity of rich supporters willing to tolerate media scrutiny and an uncomfortable reliance on the unions, Labour is living on borrowed money and borrowed time. Sir Jeremy Beecham, chair of Labour's national executive committee, said: 'Donors have disappeared since all the publicity ... It is an atmosphere not conducive to people making significant donations, however sympathetic they might be.' True, the Conservative party isn't wading in cash either, but its outlook seems rosier. With new leader David Cameron keen to refresh the party's image, the Tories attract 50% more private donations than Labour.
The status quo cannot continue. The entire party funding system in the UK is probably unsustainable. The solution most often suggested is for taxpayers to contribute to a funding pool, but polls show the great British public's reluctance to do so. The Labour party rose will continue to droop unless it gets its finances back under control.