Labour loans - why should we pay?

I made a serious mistake in 1993. As a lifelong Labour supporter, and caught up with the prevalent concern that Labour could never win again, I suspended a promise to myself that I would never make a political gift. I set up a standing order for the princely sum of £100 per month, and before I cancelled it I had donated about £10,000. A small sum by today's standards, but still enough to be branded as a "Labour donor", and certainly enough to cause me problems when I later became chairman of the BBC.

Fortunately, I then returned to my natural status quo, refusing to fund the activities of politicians. Others, however, felt rather differently.

Faced with the certain knowledge that the Tories were funding their activities through a series of massive loans, Michael Levy decided to follow the loan route for Labour. These loans did not have to be declared, provided they were on commercial terms. So when Chai Patel offered to donate £1.5m to the party, he was told that it would be better to describe the gift as a "loan". It could then be kept secret (even from the treasurer of the Labour party, apparently).

It must be questionable whether the £14m "loans" obtained by Labour ahead of the 2005 election can genuinely be described as having been secured on commercial terms. At the end of 2004, the party held £9.1m in property, against which it had already borrowed £11.5m in overdrafts and long-term loans. With debt already exceeding assets by 26.4%, any sane banker would have given the party extremely short shrift if it had asked for a further £14m in loans, largely for the purpose of burning money on poster sites. Nevertheless the loans were made, saddling the party with considerable debt.

I do not know whether any benefactors expected their somewhat unconventional lending activities to lead to political honours. I am willing to believe that they were never given any such assurance, though they had perhaps observed the strong empirical link between political donations and the subsequent arrival of ermine and pearls. Who really knows or even cares? But the result is that our political system has been left in financial trouble.

In an ordinary non-election year like 2004, the three main parties spent a total of £54.4m. They will find it impossible to raise this from individual donors if the limit from any single person is cut to around £50,000-£100,000. Still less will they be able to refinance the loans made in 2005, assuming that each of the lenders asks for his money back. Apparently Labour already faces demands to repay £6.5m this year.

The taxpayer could easily fund the political system, since total party spending represents only 0.01% of the government's annual budget. But do we taxpayers really want to rescue the political parties from their ingenious financial activities of recent years? Many would take a very dim view of being forced to do so. And if that means far fewer tit-for-tat posters at election time, and less money wasted on focus groups, then so be it.