Debt-ridden Labour admits to acute cash-flow problems

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The Electoral Commission, the public watchdog on party funding, has revealed that the Labour Party owes more than £23m in loans.

Accounts released yesterday by the commission show that Labour, which has already sold its headquarters, must repay £5.5m by the end of next month, followed by more than £11m by November next year, unless it can reschedule more of its debts.

The party was at least spared a major financial crisis by a last-minute decision by one rich benefactor not to call in monies owed. Sir Christopher Evans, who made his fortune out of biotechnology companies, last night said he had agreed to allow Labour more time to repay his loan of £1m, which was due to be repaid tomorrow.

But the accounts also revealed that the party had failed to repay another loan of £500,000 to a second wealthy financier, Gordon Crawford, when it was due at the end of August.

Mr Crawford, who made his millions in software, was one of the 12 rich businessmen, who gave loans totalling £14m to fight the election and whose names were revealed in the wake of the "cash for peerages" row. Labour has had to pay interest on his loan, adding a further £45,000 to the debt.

Last night Labour admitted it was facing "acute cash-flow problems" and was appealing to both men to allow it more time to pay them back. The party was hoping that many of its wealthy backers would convert their loans to donations. Sir Christopher had allowed his loan to be rolled over for six months.

But in a statement, Sir Christopher - who suffered the indignity of being arrested earlier this year in the "cash for peerages inquiry" by Scotland Yard - made it clear he now wants his money back.

A spokesman for Sir Christopher said: "Sir Christopher's loan to the Labour Party was made on commercial terms and that remains the case. Formal demand for repayment of the loan has been made in accordance with its terms. This has been acknowledged by the Labour Party, who have confirmed their obligations to repay the loan in full. Repayment is expected to commence within the next few weeks and conclude within a matter of months."

Tony Blair, en route to Riga yesterday for a Nato summit, denied that the party was technically bankrupt - the point at which a company cannot pay its debts and has liabilities exceeding its assets. But with Labour holding few assets, and running up a loss last year of £15m, business accountants questioned the Prime Minister's confidence. "If this was a company, I would be looking to wind it up," said one partner in a senior firm of corporate accountants.

A Labour spokesman said: "The Labour Party is currently in discussion with these creditors to development a repayment programme that meets the terms of these commercial loans as soon as possible."

The Conservative Party has loans outstanding of £35m filed with the Electoral Commission. But nearly half of the Tory loans - £16m - were used to buy the freehold of their old headquarters at 32 Smith Square, which is likely to be sold.

The police inquiry is focusing on whether the loans are truly commercial. Many of Labour's loans are at an interest rate under 7 per cent and some are for an indefinite period. If they are not judged to be genuinely commercial terms, the loans could be deemed donations, which should have been declared.

The state of the coffers

What the main parties owe in loans, mortgages and credit:

Conservatives £35,315,080 (Number of transactions: 62)

Labour £23,390,992 (Number of transactions: 53)

Lib Dems £1,131,277 (Number of transactions: 32)