Labour may have broken electoral law by accepting low-interest loans
November 28, 2006 8:08pm CST
Labour’s £14 million in secret loans from wealthy individuals were secured on preferential terms that could have breached electoral law, it was claimed yesterday. In a significant development in the cash-for-peerages investigation, the Electoral Commission revealed for the first time details of the terms of all outstanding loans taken out by political parties, including interest rates and repayment dates. This showed that Labour procured loans of up to £2 million at interest rates as low as 6.5 per cent, without security for the lenders. Opposition politicians and financial experts pointed out that such rates would not be available to high street customers, where unsecured loans are available only with at least an 8 per cent interest rate. Scotland Yard detectives are investigating whether loans received at preferential rates were used to conceal the identities of donors, a potential breach of legislation introduced in 2000. In a second blow for Labour, the party admitted yesterday that it had “acute cashflow problems” after new figures revealed that it is £23 million in debt and that large donations from individuals has almost dried up. A Labour spokesman said that it would not be able to repay all its debts on the dates that they are due. The financial crisis has forced party chiefs to beg two businessmen not to call in their loans worth £1.5 million. But Sir Christopher Evans, the biotechnology millionaire, said that he wants his £1 million back within weeks. Gordon Crawford, had a £545,000 loan due on August 29 but has not yet been repaid. Figures from the Electoral Commission revealed that the political parties owe a total of £60 million in loans, with the Tories £35.3 million in debt and Liberal Democrats £1.1 million. It is the first time that parties have had to declare loans. Labour is under the greatest short-term pressure, with £5.5 million due to be repaid by the end of next month, followed by more than £11 million by November next year. It is understood that at least two lenders have offered to extend their loans after pleas from Labour officials. The Times has learnt that the offers have been “put to one side” until police complete their investigations. The new figures revealed the largest share of Labour’s donations from July to September came from the unions. They accounted for support worth £2,819,984, more than 87 per cent of the party’s £3,227,340 donations. Labour said that, contrary to reports, it had not withheld information from its auditors. It added: “All loans taken out by the Labour Party are commercial loans based on commercial rates of interest and arrangements.” This was challenged by opposition politicians and financial experts. Lord Oakeshott of Seagrove Bay, a Liberal Democrat Treasury spokesman, said: “Labour now admit they paid only the same interest rate on unsecured loans from people, including four nominated for peerages, as on their bank loans which were substantially secured by a first mortgage on Labour’s properties.” He said that if Labour defaulted on its mortgage payments, the bank would foreclose and get most of its money back. If Labour defaulted on its unsecured loans, the lenders would not get a penny. Andrew Hagger, of MoneyFacts, a personal finance data analyst, said: “No bank in Britain would charge the same interest rate on those very different loans.” The Tories face having to pay back £2.82 million by the end of December and almost £20 million by end of June. Donations between July and September amounted to £168,259. A spokesman said that almost £16 million was spent buying the freehold of its former headquarters in Smith Square, which it was looking to sell.