Labour MPs furious over interest on loans

Labour MPs showed their anger with Tony Blair last night after it was revealed the Labour Party paid nearly half a million pounds a year in interest to millionaire businessmen for loans raised by Lord Levy, the party fundraiser who was arrested in the "cash for peerages" investigation.

Both Labour and the Tories sank deeper into the red with the loans and higher-than-usual spending of around £15m each to fund their general election campaigns. Labour recorded net liabilities of £27.25m and the Conservatives had net debts of £26.4m at the end of 2005, according to the annual accounts released by the Electoral Commission. The Liberal Democrats spent £4.9m on their election campaign but finished the year fractionally in financial surplus.

The huge deficits from the two main parties are likely to increase the pressure for state funding, but the Labour accounts added to the row over the party's use of commercial loans totalling £13.9m from 12 wealthy businessmen. The lenders included four millionaires who were nominated for peerages by Mr Blair.

The police are expected to study the accounts closely. They revealed the party paid a total of £436,000 in interest on its loans in 2005. A total of £104,000 was paid in interest to Sir David Garrard, a property millionaire, on his loan of £2.3m; £45,000 to Barry Townsley, a broker who loaned £1m; £42,000 to Chai Patel, the Priory founder who loaned £1.5m; and £11,000 to Sir Gulam Noon, the food magnate, who loaned £250,000.

Interest payments of £95,000 were also made to Lord Sainsbury, the science minister.

"It is a disgrace that the leadership has put Labour in hock to a bunch of rich businessmen," said Peter Kilfoyle, a former minister. "We are now having to find money to pay off these wealthy lenders. That is not what this party is supposed to be about."

Mr Kilfoyle and some Labour left-wingers on the ruling national executive committee accused the leadership of using loans as part of a long-term strategy of breaking Labour's links with the trade unions, a charge the Blairites deny.

Labour's accounts showed that its loans are made on a rolling basis, giving the party six months to repay them if the lender insists on being repaid. Only two of the Labour lenders have asked for the money to be repaid when the term of between 180 days and a year ends, while others have agreed to reschedule their loans.

The Electoral Commission will be investigating whether the Labour and Tory loans are commercial after the Metropolitan Police inquiry is over.

Last week, police arrested and interviewed Lord Levy as part of their continuing inquiry into the "cash for honours" row. No charges were made and the peer has denied any wrongdoing.

The report signed by Labour's general secretary, Peter Watt, and party treasurer, Jack Dromey, who showed public anger over not being told about the loans, said that the party was being charged up to 6.75 per cent interest on the loans, two points above the bank rate.

They said the accounts provided Labour with a "stable financial platform for the foreseeable future" and disclosed Labour was cutting costs to reduce the size of its debt. An overdraft and long-term loan facilities totalling £13.5m have been agreed with its bankers. Labour's liabilities were made up of a deficit of £14.5m on the year, a £6m mortgage on its headquarters, and £6m pension fund debts.

The Liberal Democrats raised income of £8.6m and spent £8.8m. The party managed to record a surplus of £298,000 thanks to a combination of due creditors and bank savings.

The Tory accounts showed that Lord Marland, the party treasurer, raised £23m in loans, far higher than the £16m announced in March. David Cameron, the Tory leader, refused to name all those who loaned money to the party.

Party accounts - who spent what

Labour

Total expenditure: £49.8m - as against total income of £35.3m, making total 2005 losses of £14.5m.

Labour spent £15.2m on the 2005 election campaign and raised £13.9m in loans, with interest payments totalling £436,000 in 2005.

Membership subscriptions raised £3.7m.

The accounts show that Labour membership dropped slightly - by 3,348 to 198,026 - by the end of 2005.

Total net liabilities: £27.25m.

Conservatives

Total spending was £39.2m in 2005 - as against income of £24.2m, making total 2005 losses of £15m.

The Tories spent £15.7m on their election campaign and raised almost £23m in loans from rich backers - more than the £16m announced by the party in March.

Total net liabilities: £26m.

Liberal Democrats

Raised £8.6m and spent around £8.8m

The party spent £4.9m on campaigning.

2005 losses: £207,000

The party had 72,031 members at the end of 2005 during the row over Charles Kennedy - down 690 compared with 2004.

Total net assets: £298,000