Loans allow backers to provide 'secret' funding

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Tory grassroots supporters are turning their backs on the party by refusing to give straight cash payments and insisting that any money they do give is in the form of loans.

Confidential internal party figures leaked to the Independent reveal an increasing reluctance among constituency associations to dip into their pockets. The figures, which cover the party region by region, raise further questions as to where Central Office is getting its funding from.

In the last few weeks, party sources have been bullishly declaring their cash crisis is over, and it may be that corporate donors who no longer wish to be publicly identified as benefactors are also offering the party loans. Unlike a cash payment, which should be declared as a political donation in company accounts, a loan can be hidden. A company is under no obligation to declare it and if it is not repaid, the money can be written off as a bad debt.

The constituencies certainly appear to favour this method of funding. In the financial year to the end of March (see table), they only met 40.3 per cent of the target set by Central Office - pounds 1.107m in donations against a target of pounds 2.746m.

This total was pounds 33,000 down on the 1994-95 tally of pounds 1.140m. Not only is the overall figure down but performance is also waning: the 1994-95 tally was 42.5 per cent of target, against 40.3 per cent this time.

While cash donations are down, however, constituencies are happy to make loans, with areas where Tory support is currently weakest among the biggest lenders. North West, for instance, made donations of pounds 69,999 but loaned pounds 435,709.

The figures will fuel suspicions that the Tories are relying on private benefactors who they refuse to name and new ways of boosting their finances.

Long-time corporate donors have scaled back their funding in the last few years, with many companies, such as Glaxo and Whitbread ceasing to give altogether. Party treasurers maintain, however, that corporate support has remained fairly steady, at around pounds 2m a year.

This, plus this latest set of constituency totals, adds to the mystery of where the money is coming from. Party insiders maintain they have received at least pounds 10m in donations in the past 12 months. The party chairman, Brian Mawhinney, announced in March that the overdraft, which had been as high as pounds 15m was down to pounds 2.5m.

Increasingly, they are going down the loan route for their money. Constituencies are preferring to give loans at low rates of interest. They are provided on such long repayment terms as to be non-returnable, but most associations insert a clause saying they can be repaid at short notice if required.

For constituencies, loans are proving more popular than cash because it enables them to keep a hold over their money and to feel it has not been swallowed for ever. Private individuals and companies are also being encouraged to give loans. Central Office sources have confirmed that corporate donors are being canvassed to make loans if they feel worried about being publicly revealed as Tory backers.