Labour left with massive election debt

n Report reveals party pounds 4.5m in red n pounds 13m was spent on 1997 victory n Drive to raise funds from celebrities

LABOUR PARTY funds slumped to a record deficit of pounds 4.5m after the general election last year. The party's annual report, published today, reveals that it spent pounds 13.7m on the election in 1997, bringing its total election expenditure over three years to pounds 26m.

The report says: "The cost of electioneering is getting out of hand and putting an unreasonable strain on party fundraising. As a result of these election costs, Labour built up by far the largest debt in its history."

The document also highlights contributions made by celebrity backers and big business sponsors, including donors such as Melvyn Bragg and Lord Sainsbury, who were later given honours by Tony Blair. One in three of the 97 donors have secured a ministerial job, a peerage or an advisory post since making their gift.

Yesterday the list was seized on by the Conservatives as evidence of "cronyism at the heart of the Government".

Others named as giving at least pounds 5,000 each to the party include Granada and Arts Council chief Gerry Robinson, the comedians Ben Elton and Eddie Izzard, the actors Sinead Cusack, Jeremy Irons and Richard Wilson, the Manchester United manager Alex Ferguson, the retailer Tim Waterstone and the electronics magnate Alan Sugar.

The party makes a distinction between donations and sponsorship, describing the latter as a "commercial transaction". It lists sponsors who paid more than pounds 5,000, which included GJW, the lobby firm for which the controversial Derek Draper went on to work, Sainsbury's, Tesco and Safeway, Geoffrey Robinson, who was made a Treasury minister, the PR firm Citigate Westminster, BT and Scottish Power.

Opposition spokesman Gary Streeter said: "Publication of their list of donors of more than pounds 5,000 reads like the guest list for a Downing Street drinks party. Labour has shown that theirs is a government of back- slapping cronies."

Labour believes the report will strengthen its call to the Neill committee on party funding, due to report in October, to set a pounds 15m cap on party expenditure at elections.

It says that spending on elections must be brought under control, although "there is no doubt that this expenditure was needed if Labour was to match the pounds 28m spent by the Tories".

Asking party members for help to deal with the debt may prove more difficult now than a year ago. The party has suffered a dip in membership from a peak of 405,238 at the end of 1997. Disenchantment with the Government is believed to have contributed to a fall-off of up to 20 per cent in the rate of membership renewal.

Party sources say the accumulated deficit of pounds 4.5m has since been halved. The outgoing general secretary, Tom Sawyer, also given a peerage, says the party expects to be able to tell its annual conference in September that it will wipe out the debt by the end of the year.

The report says that a "huge increase" in funds will be needed to meet the cost of the next election, unless a cap is imposed on the total that parties can spend. But there are clear fears that the party's campaign for the next election could be undermined by the shortage of cash, if the unions carry out their threat to switch their funding from the party to individual candidates.

The report does not make clear how much the unions contributed to party funds, but it says the party has two fund-raising accounts underwritten by trade unions. In 1997, they raised around pounds 12m. The annual cost of running the party was around pounds 11.6m - a 4.8 per cent increase on the previous year. Around pounds 2.5m in cuts was imposed on party spending this year to reduce the deficit.

The Co-operative Bank has agreed a conditional overdraft of pounds 1m this year, with loans of pounds 3.8m.

Millionaires chip in for Labour, page 3