Labour faces 'cash crisis' as Co-op reviews ties to party in wake of Flowers scandal

Millions of pounds in loans and donations to the opposition could be in doubt as inquiry seeks to get to the bottom of the Co-op's failings

Labour could be faced with a major funding crisis ahead of the 2015 general election, as the scandal-hit Co-operative Group reviews its links to the party.

The Sunday Telegraph reported that Ed Miliband’s party could be forced to pay back more than £2 million it has received in loans from the Co-op and a sister bank.

Those loans were secured on favourable terms against future income from union affiliation fees, the newspaper said – ties which Mr Miliband has said he is reconsidering in the wake of alleged union interference in the selection of a Falkirk Labour candidate.

As a result, and with the Co-op Bank set to be bailed out by US hedge funds, as much as £2.4 million worth of loans could be open to renegotiation. These financial links to Labour will reportedly form part of the public inquiry into how the bank came so close to collapse.

Meanwhile, the Observer today revealed that the Co-op is also reconsidering its £850,000 donation to Labour MPs, and could be about to cut it by at least a third.

The money goes to a group of 32 politicians who are members of both the Labour and Co-operative parties, and sources told the newspaper that informal contact had been made to warn them of an impending funding cut.

Barry Sheerman, Labour MP for Huddersfield, told the Observer: “There is no doubt there is going to be a 30 per cent cut across the board.”

The review of the Co-op’s political links comes in the wake of a scandal surrounding Paul Flowers, who was chairman of the bank at the time the loans with Labour were agreed.

The former Labour councillor and Methodist minister was filmed allegedly buying illegal class-A drugs, including crystal meth, and has since been hit with a string of embarrassing revelations about both his private and public life and competencies.

Mr Miliband, writing in the Independent on Sunday, has batted away criticism from the Prime Minister over Labour’s financial links to the Co-op. 

Referring to the row, Mr Miliband writes that on Wednesday Mr Cameron “hit a new low by trying to use the gross errors and misconduct of one man, Paul Flowers, to impugn the integrity of the entire Labour movement.

“We all want proper answers as to what went on at the Co-operative Bank, and the public deserves better than the desperate attempts by the Tory party score the cheapest political points, including ludicrous claims that Labour’s historic links with the Co-op movement were the invention of Rev Flowers,” he said.

The claims of a cash crisis were also refuted today, with a Labour spokesman saying: “Our loans with the Co-operative Bank and Unity Trust Bank are secured and are being repaid in accordance with formal long-term commercial agreements and the Labour Party is on a secure footing for the future.”

The Opposition is set to go on the offensive over the Co-op’s failings, and will launch a fresh push for an annual “validation of competence” check for senior bankers this week when the Financial Services (Banking Reform) Bill returns to the Lords.

Shadow financial secretary Cathy Jamieson said: “Paul Flowers was chairman of the Co-op Bank for three years while David Cameron and George Osborne have been in Government.

“During that time they were not only encouraging the Co-op's failed bid to buy Lloyds branches but also opposing a tougher regime for senior bankers. An annual health check, which ministers resisted on three separate occasions, could have spotted problems and rung alarm bells in this case.

“We will push our amendment again in Parliament this week. After the revelations of the last few days David Cameron and George Osborne should do a U-turn and back it.

“There are now mounting questions for the Government to answer about how the Co-op Bank got into trouble on its watch. George Osborne and his ministers cannot continue to duck them.”

Start your day with The Independent, sign up for daily news emails
Life and Style
Steve Shaw shows Kate how to get wet behind the ears and how to align her neck
healthSteven Shaw - the 'Buddha of Breaststroke' - applies Alexander Technique to the watery sport
Arts and Entertainment
The sight of a bucking bronco in the shape of a pink penis was too much for Hollywood actor and gay rights supporter Martin Sheen, prompting him to boycott a scene in the TV series Grace and Frankie
tv
Sport
footballShirt then goes on sale on Gumtree
Voices
Terry Sue-Patt as Benny in the BBC children’s soap ‘Grange Hill’
voicesGrace Dent on Grange Hill and Terry Sue-Patt
Have you tried new the Independent Digital Edition apps?
News
ebookA unique anthology of reporting and analysis of a crucial period of history
Arts and Entertainment
Performers drink tea at the Glastonbury festival in 2010
music
Arts and Entertainment
Twin Peaks stars Joan Chen, Michael Ontkean, Kyle Maclachlan and Piper Laurie
tvName confirmed for third series
Sport
Cameron Jerome
footballCanaries beat Boro to gain promotion to the Premier League
Arts and Entertainment
art
Latest stories from i100
Have you tried new the Independent Digital Edition apps?
Independent Dating
and  

By clicking 'Search' you
are agreeing to our
Terms of Use.

iJobs Job Widget
iJobs General

Guru Careers: Software Developer / C# Developer

£40-50K: Guru Careers: We are seeking an experienced Software / C# Developer w...

Guru Careers: Software Developer

£35 - 40k + Benefits: Guru Careers: We are seeking a Software Developer (JavaS...

SThree: Trainee Recruitment Consultant / Resourcer

£18000 - £23000 per annum + Commission: SThree: As a Trainee Recruitment Consu...

Ashdown Group: UI Developer - (UI, HTML, CSS, JavaScript, AngularJS)

£25000 - £40000 per annum: Ashdown Group: UI Developer - (UI, JavaScript, HTML...

Day In a Page

Abuse - and the hell that came afterwards

Abuse - and the hell that follows

James Rhodes on the extraordinary legal battle to publish his memoir
Why we need a 'tranquility map' of England, according to campaigners

It's oh so quiet!

The case for a 'tranquility map' of England
'Timeless fashion': It may be a paradox, but the industry loves it

'Timeless fashion'

It may be a paradox, but the industry loves it
If the West needs a bridge to the 'moderates' inside Isis, maybe we could have done with Osama bin Laden staying alive after all

Could have done with Osama bin Laden staying alive?

Robert Fisk on the Fountainheads of World Evil in 2011 - and 2015
New exhibition celebrates the evolution of swimwear

Evolution of swimwear

From bathing dresses in the twenties to modern bikinis
Sun, sex and an anthropological study: One British academic's summer of hell in Magaluf

Sun, sex and an anthropological study

One academic’s summer of hell in Magaluf
From Shakespeare to Rising Damp... to Vicious

Frances de la Tour's 50-year triumph

'Rising Damp' brought De la Tour such recognition that she could be forgiven if she'd never been able to move on. But at 70, she continues to flourish - and to beguile
'That Whitsun, I was late getting away...'

Ian McMillan on the Whitsun Weddings

This weekend is Whitsun, and while the festival may no longer resonate, Larkin's best-loved poem, lives on - along with the train journey at the heart of it
Kathryn Williams explores the works and influences of Sylvia Plath in a new light

Songs from the bell jar

Kathryn Williams explores the works and influences of Sylvia Plath
How one man's day in high heels showed him that Cannes must change its 'no flats' policy

One man's day in high heels

...showed him that Cannes must change its 'flats' policy
Is a quiet crusade to reform executive pay bearing fruit?

Is a quiet crusade to reform executive pay bearing fruit?

Dominic Rossi of Fidelity says his pressure on business to control rewards is working. But why aren’t other fund managers helping?
The King David Hotel gives precious work to Palestinians - unless peace talks are on

King David Hotel: Palestinians not included

The King David is special to Jerusalem. Nick Kochan checked in and discovered it has some special arrangements, too
More people moving from Australia to New Zealand than in the other direction for first time in 24 years

End of the Aussie brain drain

More people moving from Australia to New Zealand than in the other direction for first time in 24 years
Meditation is touted as a cure for mental instability but can it actually be bad for you?

Can meditation be bad for you?

Researching a mass murder, Dr Miguel Farias discovered that, far from bringing inner peace, meditation can leave devotees in pieces
Eurovision 2015: Australians will be cheering on their first-ever entrant this Saturday

Australia's first-ever Eurovision entrant

Australia, a nation of kitsch-worshippers, has always loved the Eurovision Song Contest. Maggie Alderson says it'll fit in fine