Well done Ed, this is right for the party. Just one thing: make sure you’ve squared off the creditors

by Atul Hatwal

This morning Ed Miliband will make a brave and genuinely bold move. Backing a change to the terms of union affiliation, so that individual trade unionists “opt in” to pay towards the party, will revolutionise the party’s relationship with union members.

It will potentially give Labour a direct link to millions of trade unionists and enable the party to focus the funding spotlight on the Tories’ dodgy big money donors.

Others’ have written about the merits of this move, suffice to say it is radical and offers the opportunity to comprehensively modernise Labour’s relations with the unions.

There’s just one thing. And it’s likely that the team at Brewers Green will have already addressed this, but just in case, before Ed Miliband gets up to speak, it’s important that the Labour party has made sure its creditors are comfortable with the changes being proposed.

Why? Because the party has long term loan financing arrangements that are secured against a stable, minimum level of future income.

A few years ago, the party did what many businesses and individuals do: it refinanced its debts. As part of this process, agreements were signed that committed the Labour party to a more manageable  schedule of repayment and debt servicing .

The creditors consented to signing these less stringent agreements because Labour promised to maintain a minimum level of income, out of which a proportion would be dedicated to debt payment and servicing.

Let’s be clear: this does not mean the party will suddenly no longer be able to fund its commitments under these agreements, following Ed’s announcement.

As the esteemed Peter Watt set out in a prescient post on party funding last year, in a typical non-general election year, trade union affiliation fees will total roughly £8m. Out of an annual income in the range £27m-£30m, the affiliation fees constitute about 27% of income – a very significant proportion, but even if they fell sharply in a year, the party could still meet its minimum annual debt repayment and servicing costs.

According to the last set of published accounts for 2011, the party owed six individuals £8.2m. The agreement was to pay down this sum at £2m per year, in addition to payment plan to reduce the £3.5m overdraft with the Co-op and Unity banks.

There would be much pain and deep cuts, but the payments could be made.

Instead, the issue could be that by placing such a proportion of income at risk, the terms of the creditor agreements will be breached and some may either want more rapid repayment or a higher interest rate to compensate them for the greater repayment risk.

In a commercial setting, if debts had been secured against future income, and 27% of income was genuinely at risk, there would likely need to be a wholesale re-negotiation with creditors.

For Labour, in most cases, the creditors who have lent the party money are supporters and will potentially  be understanding.

But in some instances, for example with a large chunk of Labour’s overdraft with the soon to be stockmarket listed Co-op bank, there may be less understanding and more commercial pressure.

There will always be unintended consequences from a move as bold the one Ed Miliband is about to announce.

Not everything can be predicted or prepared for.

But in the context of the party’s financial position, it’s important that the right due diligence has been conducted, or at least is undertaken very quickly, on these proposals, to ensure a financial crisis for the Labour party isn’t one result of today’s big speech.

Atul Hatwal is editor at Uncut


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3 Responses to “Well done Ed, this is right for the party. Just one thing: make sure you’ve squared off the creditors”

  1. Nick says:

    Labour doesn’t get debt.

    From the true debt of 7,000 bn (pensions included – you do want your’s don’t you?) to party finances, its made people poor.

  2. Ex-labour says:

    Atul

    I normally agree with most of what you write as you seem the most grounded in reality on this blog, but here you’ve had a bit of a “heads gone” moment.

    “Tories dodgy big money donors” …..err …..the biggest donations have gone to Labour via the unions and John Mills of JML with his “tax efficient” donation.

    Union members are not asked if they want their money given to Labour (at least they werent when i was a member) and as John Reid pointed out on another blog reply that many union members voted Conservative.

    Finally how much does Labour owe the Co-op Bank? All these reckless bankers lending money to people who can’t pay it back eh?

  3. justin thyme says:

    The Labour Party in this country has no interest at all in its history, the population of disabled, unemployed, poor or poorly paid people. The Labour Party stands toe-2-toe with the elites and the right-wing mercenaries in banking and finance.

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