The real reason why the Co-op saga is bad news for Labour

by Rob Marchant

First, let’s get a few things straight. The Co-op Bank is not the Co-op Group, and is not the Co-op Party, a separate political party which sponsors MPs, among other things. Problems for one does not necessarily mean disaster for all three.

And there are two further stories currently being bandied around, both fallacies. And a third story, which no-one seems to be telling, which is the truth.

Fallacy one: the Labour Party is tainted with the scandal of Paul Flowers. Tosh.

It is no more Ed Miliband’s fault that his banker was found to have dodgy personal habits and was not apparently a very competent chairman, than it is any of the thousands of business or charitable customers of the bank who were similarly disappointed. No, the attempt to link Flowers to Labour is a rather desperate attempt by the Tories and right-leaning newspapers to succeed where they have largely failed in getting the public’s attention over Falkirk; a matter over which, in stark contrast to the Co-op, the party’s behaviour is open to serious question.

Fallacy two: the Labour Party will be broke because of the loss of donations from the Co-op. Wrong. There are currently 32 MPs sponsored by the Co-op Party who have been told, according to the Guardian, that they might face a 30% cut in funding. What is the worst that can happen to them? Well, it’s that they might have to do what other MPs do: raise funds themselves to fund their constituency offices. So what?

A bit of a back-of-the-envelope calculation: funding of the Labour Party during the first ten months of 2013, above the minimum donation threshold, from organisations containing the word “Co-operative”, amounted to the princely sum of £17,478.25 (by all means check my calculation at the Electoral Commission here). Even allowing for a margin for error, compare that to the millions the party receives annually from trade unions and you can see how ludicrous it is to think the party’s funding will be seriously hit.

The third point is not a fallacy, sadly, but it is the one no-one seems to be focusing on.

It’s very simple: for many years, Labour has had a very useful and fruitful relationship with the Co-op Bank. Even when the party was pretty broke, which it usually was after elections, they were decent and helpful about the overdraft. They have been good comrades. The result of recent problems, even were it not going to happen with the rescue of the Co-op Bank announced this summer, is that different stakeholders – and shareholders – now matter.

As Uncut’s Atul Hatwal pointed out last July, one result of the reworking of the party’s relationship with unions is that the size of its whole income stream over future years is now in question.

Now, this was OK when your bankers were good comrades who would understand the vicissitudes of the electoral cycle and that fundamentally they and the party’s affiliated unions would never see the party go to the wall.

As any banker will tell you, the interest rate charged on any loan is largely based on having complete information on the borrower. The better they understand your operation, the more likely you are to get a good interest rate, because better knowledge generally lowers the risk they are taking.

Even if the analysis were perfectly politically neutral, it surely would not be as generous as that of the ancien regime at the Co-op Bank. However, there’s more to it: the Guardian also notes that the bank is now being advised by Quiller Consultants, a firm run by a former special adviser to…ah, one David Cameron. Get the picture?

When the party’s debts are looked on with colder, more objective eyes, especially those who might just have connections with the Conservative Party, it seems somehow especially unlikely that generous terms will be offered to a party whose income stream is yet to be agreed (and will largely depend on negotiations with unions between now and spring conference as to what that will mean).

This trouble for the Co-op could not have come at a worse time for Labour, because there is a similar effect to a donations crunch: it increases the short-term pressure on Miliband not to go through with his reforms and to accept union donations in similar amounts as before. If this plan were not on the “too difficult” path before, it surely is now.

Either his gamble pays off, and the party gains as much, or more, in membership subscriptions from new members coming from unions than it will lose in union donations; or the party not only becomes broke, but is then further restricted on its borrowing to fill the gap, as lines of credit have been shortened.

Finally, as all creditors know, the more debt you get into, the higher the rates; the higher the rates, the more debt you get into. Without a friendly banker to hand, Labour certainly cannot afford to let its debt spiral.

In the long term, paradoxically, this may even be good for the party. It will certainly impose a financial rigour to an extent never before required on the party’s finances. It could even prevent in future those perennial twin curses of the party; politicians who think that the party has a never-ending supply of funds to finance their spending whims, and general secretaries who only want to say “yes” to them. But in the short term, it can spell only further pain for the party.

In short, it is very likely that, of all the silly things being claimed to result from the demise of the Co-op Bank as we know it, the thing Labour is likely to miss more than any other is the easy-going nature of its overdraft.

Rob Marchant is an activist and former Labour party manager who blogs at The Centre Left


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10 Responses to “The real reason why the Co-op saga is bad news for Labour”

  1. swatantra says:

    Rob is right on most counts. It is a bad time for both Labour and the Coop movement. After an extremely successful IYC 2012, and more people coming round to the idea of mutual ownerships and cooperatives startup and social enterprises , delivering services like health and care, and workers coops and housing coops as alternatives to council housing, with tenants actually taking ownership of services instead of expecting the state to deliver all, and credit unions, the Flowers fiasco has set all that agenda back.
    Just when Labour were looking into mutualising banks and financial services, this happens. Still its an opportunity to reassess the links with Labour; the same process the Unions are going to go through. The Coop Party is small compared to the Unions might, but it is a sister Party to Labour; it means we are hamstrung, and can’t put up separate Coop Party Candidates, they have to stand as Lab and Coop, that means many cooperators won’t join the Coop Party because they don’t like Labour’s blinkered politics; they dont think Labour is forward looking enough and able to deal with issues in the C21.

  2. steve says:

    “In the long term, paradoxically, this may even be good for the party.”

    Quite right, Rob.

    No doubt all this will cause Miliband to press for state funding with renewed vigour but that would, in my view, be a mistake.

    A politically engaged electorate, with social media to hand, need not be dependent on handsomely funded party-political spin campaigns orchestrated by ‘communication consultants’. And if a party isn’t capable of winning the engagement of the electorate on its policy offer then let it wither and die in its own irrelevance.

  3. Ex Labour says:

    Rob

    A couple of points:

    Firstly I would disagree that as far as the crystal methodist is concerned it is not a case of “move on nothing to see” as you seem to indicate. It doesn’t matter which Co-Op division he belonged to, the party is inextricably linked with the Co-Op. If the boot was on the other foot, the Labour spinners would be crying “nasty Tories” and “evil” drug addled rent boy texting Tories. You know they would.

    The main issue was he was fired as a Labour councillor and why didn’t the Labour Party know that !! It looks like a case of close your eyes, say nothing and take the money.

    Secondly I agree and have said this on a number of my replies, that Labour are now walking a financial tightrope. If they loose union funding which has in fact started with the GMB, its one thing. However together with a new financial focus at the Co-Op bank the current £12 M debt is probably very much in focus as they try to regain control of the banks finances. I doubt very much that future largesse will be forthcoming.

    As a note both Osborne and Cameron have gone on record saying that the Co-Op Bank is important and the interests of the savers is of paramount importance and that they will be focused on ensuring the bank recovers. So I think your tenuous link to Cameron and implying that they would see the bank damaged because of its Labour connections is disingenuous at best and yet more Labour distraction spinning.

  4. james says:

    You don’t seem to understand – the reason why it’s not good for the Labour party is not simply the loan that will never be paid back – it’s the fact that the ordinary joe or joanna in the street could never receive a loan like that because they’re not higher ups in the Labour party.

    Once you can clear up your own financial mess – Labour’s in huge debt EVEN WITH such a beneficent backer then you can move on to talk about other parties.

    To the average casual punter it just looks like `oh it’s that labour lot again – can’t run a whelk stall` and that’s because they’re right.

  5. paul barker says:

    The problem with this article is that it treats the problems with Entryism, The Unions & The Co-op as though they were completely unrelated issues that just happened to pop up at the same time; a run of bad luck.
    In fact the problems of The Co-op & The unions stem directly from their links to Labour.

  6. John reid says:

    Well said Rob, the leadership should read this,

  7. @Ex Labour:

    We might be well be crying “nasty party” were the boot on the other foot, that doesn’t mean it is a valid charge which would stick, or that it is the right thing to do. I don’t like it when any major party gets into stupid politics, be it my own or another. We deserved criticism on Falkirk; we do not over the Co-op. I also think it will probably be forgotten very quickly.

    Re being fired as a Labour councillor, so what? Lots of people have been fired as councillors, quite rightly. I can’t imagine they thought it was moving all their finances (and debt) from a friendly provider over this.

    Am not sure about your assertion that the link to Cameron is tenuous, btw. As someone who criticises the Guardian on a fairly regular basis, it seems pretty unlikely that the people now (a) advising and (b) financing/buying the Co-op Bank are going to be fastidiously politically neutral; I speak from personal experience of the finance industry. If they are not neutral, it will hardly help the Co-op or Labour. And even if they were so and perfectly objective, as I point out, they would still very likely offer worse Ts and Cs to Labour. Bankers are not well-known for understanding the business of political parties – it’s a pretty niche discipline.

  8. Tafia says:

    And the loans? Labour does not have a right to roll them over – that is at the discretion of Co-Op bank (which will soon be American owned bet your house on it), nor does iot have a right to an overdraft, nor does it have a right to fresh loans.

    In fact Labour’s finances are in such a parlous state and reliant on goodwill to such an extent that even Wonga would walk away.

  9. southern voter says:

    Labour needs to attract more members to the party.Not only will this bring extra money to the bank account but will re-energise the party with the influx of new members.

  10. Ex Labour says:

    @ Rob

    OK, so the new backers of the Co-Op are there to ensure the bank survives and the depositors money is safe. You accuse them of not being politicvally neutral, and was the Co-Op politically neutral in the first place ? I’ll answer that for you – NO ! It loaned money (actually gave money) to the Labour party at rates that most businesses or individuals would never get. Would an ordinary punter get these rate? I’ll answer that for you again – NO ! Perhaps in your eyes not being politivcally neutral means actually charging Labour market rates for the huge borrowing and debt and ensuring that the bank loans money on a proper financial footing.

    So you seem to be in the know, then amswer these questions:

    – Which part of the Co-Op “loaned” money to Labour ?

    – Who authorised these loans at well below market rates ?

    – Were Co-Op customers aware that their money was being “loaned” in such circumstances ?

    – Which part of the Co-Op gave donations to the many Labour MP’s (including Ball’s £50K ?

    – Who in the Co-Op authorised this ?

    As for Falkirk the Labour leadership are hiding something in that report. I suspect as Atul and others on here suggest there is some pretty tricky stuff for Red Ed to expalin reagrding his collusion with Unite.

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