Election spending puts Labour and Tories deep into the red

Labour and Conservative party finances were today revealed to be in a perilous state following last year's general election, with Labour trebling its debt in just 12 months while the Conservatives saw a sixfold increase.

But both parties insist their deficits were covered by loans from supporters taken on at commercial rates.

Labour's total debt excluding pension liabilities at the end of 2005 was £20.9m, more than three times the £6.4m figure recorded at the end of 2004, according to end-of-year accounts published by the Electoral Commission.

And the Tories' net liabilities of £18.1m were almost six times the party's £3.1m debt at the end of 2004.

The accounts revealed that the Tories had taken out interest-bearing loans with fixed repayment dates totalling £22.9m - significantly more than the £16m announced by the party in March.

Loans to the Conservatives totalling £8.4m will be due for repayment by the end of this year.

"We are working towards a break-even turn-out for 2006, before taking credit for any of the loans which have been converted into donations," wrote board member Lord Marland.

The accounts showed that some £235,000 worth of loans were converted into donations in 2005.

The party's board said that it was "satisfied that Conservative Central Office will not be called upon to repay the loans it has received from party supporters unless it has sufficient funds available for this purpose, with lenders agreeing to the deferral of loan repayments and/or the arrangement of replacement loans as necessary".

Reporting on the Labour party's accounts, the party's general secretary, Peter Watt, and treasurer, Jack Dromey, confirmed that the party received £13.95m in loans, including £2m lent by fashion magnate Richard Caring in March of this year.

Interest is being charged at 6.5%-6.75% - two points above the Bank of England rate - and had totalled £436,000 by the end of 2005, the party said.

While two of the lenders have indicated that the money must be repaid when the term of between 180 and 365 days comes to an end, others have agreed to reschedule their loans to "future periods", said the report.

Mr Watt and Mr Dromey insisted that the accounts provide Labour with "a stable financial platform for the foreseeable future" and revealed that the party has embarked upon "an active programme of cost containment" to reduce the size of its debt.

They recorded a fall of 3,348 in Labour's membership, which is currently understood to number around 200,000

The decision to take on loans running into millions of pounds to cover the expenditure has sparked furious controversy, and has led to a change in the rules to require loans to be declared to the commission in the same way that large donations are.

The Labour party chairwoman, Hazel Blears, acknowledged that the party was in "a fairly challenging position" financially.

"Obviously, a party that's got substantial running costs and also has fought a general election inevitably will have spent an awful lot of money," she told BBC Radio 4's World at One programme.

Ms Blears said that the current controversy about loans risked undermining public confidence in the democratic system.

"The general feeling that somehow party politics in this country is not a respectable activity is damaging for the whole of democracy," she said.

"I think we need to be very robust in saying that party politics are essential to democracy.

"Politics costs money to run and therefore people should be encouraged to support parties that express their values."

A Metropolitan police investigation is under way into allegations that peerages were offered to millionaire backers in return for loans.

The financial accounts published today cover political parties whose gross income or total expenditure for the year ending December 31 2005 was in excess of £250,000.

Peter Wardle, the chief executive of the Electoral Commission, said: "The statements of accounts provide more details, particularly on the issue of loans, than has been the case in the past.

"We called for parties to declare full details of all loans and we're pleased that the government acted quickly in response by changing the law to ensure that loans will be reported to the commission on the same basis as donations in the future."

The latest update on political party funding showed Labour and the Conservatives spent similar sums on last year's general election.

Labour spent almost £15.2m on campaigning in 2005, on top of running costs of £23.8m and other expenses, which brought the party's total expenditure to £49.8m.

It had an income of £35.3m over the year, including donations totalling £13.9m and membership subscriptions of just under £3.7m.

The Conservatives spent around £15.7m campaigning, out of a total expenditure for 2005 of £39.2m. The Tories' income was £24.2m, including £13.6m in donations and membership fees of £843,000.

Meanwhile, the Liberal Democrats recorded a deficit of £207,052, receiving an income of almost £8.6m and spending around £8.8m, of which some £4.9m went on campaigning.

The electoral watchdog warned that some political parties were guilty of "under-reporting" donations by local accounting units - constituent or affiliated organisations responsible for their own financial affairs and transactions.

A number of accounting units have either failed to submit statements of accounts despite having an income or expenditure of over £25,000 or have submitted accounts after the statutory deadline.

Some statements of accounts for 2005 show a total income from donations registered by some accounting units exceeding the donations reported to the commission over the year on a quarterly basis.

Relevant parties have been contacted and will be expected to report any late donations, the commission confirmed today. Mr Wardle added: "While the late reporting of donations is disappointing, the value of the late donations we now expect the parties to report will only be a small fraction of the total reported donations in 2005 of over £43m.

"We are continuing to work with the parties to ensure they have robust plans in place to deal with any significant reporting problems."