Labour 'too poor' to contest Scottish and Welsh elections

Labour faces the worst financial crisis in its history – one that could undermine its ability to fight next year's Scottish and Welsh elections.

A draft budget circulated to members of the National Executive Committee, which meets this week, says: "The party is in the worst financial position it has ever been.''

The party's debt going into the current financial year is a ''sizeable'' £6 million, but that there will be ''a larger debt when moneys owed are taken into account''. These are thought to be around £2m.

The document, seen by BBC's On the Record programme, adds: "Sizeable repayments to the bank are expected in 2003. This was not the case in 1999 (the year of previous Scottish and Welsh elections) and represents a significant challenge."

While some cash has been squirrelled away for Westminster by-elections, "elections to the devolved legislatures will not be able to place significant pressures on the party centrally".

Party insiders have confirmed that, since the document was drawn up, the situation has not improved – despite the decision to move the party's policy and press operation out of its expensive Millbank Tower premises.

About £200,000 has already been set aside for redundancies, though none is thought likely to be compulsory. One source described Labour's finances as being in "dire straits".

In 1999, significant numbers of party staff and supporters were drafted into Scotland. Currently, Millbank can spare only the services of Tracey Paul, a middle-ranking official. She was close to the former general secretary Margaret McDonagh – and one apparatchik joked that the current chief, David Triesman, had sent her into ''internal exile''. He was said to be ''livid'' when he discovered the full scale of the financial mess he had inherited.

The party now faces the difficult choice of going cap in hand to its trade union paymasters or wooing the high- value donors. Both options are fraught with complications.

The NEC will be asked to approve increased membership fees, but, even if any rise is endorsed by the party's conference in the autumn, it is unlikely to wipe out more than 15 per cent of Labour's debt.

The meeting will also discuss plans to replace nearly all retiring MPs with women candidates, in an attempt to end male dominance at Westminster. The NEC is expected to agree proposals to raise the share of female Labour MPs – which has already declined from its record peak in 1997 – to one third after the next election.

Positive discrimination, allowed under laws passed by the Government in its second term, will be used to ensure rapid progress towards the goal of equal representation.

But campaigners know they face opposition from within the party, despite equality being a clear commitment backed by the Prime Minister and Labour party chiefs.

Labour MP Helen Jackson, a member of the NEC, said: "They are very tough targets that the party is setting itself. Our experience has shown that it is an area where you have to be mega-tough to make significant progress."

The NEC meeting on Tuesday is also expected to block the immediate return of London Mayor Ken Livingstone to the party.

Iain Watson is a reporter for BBC's 'On the Record'