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The Sunday Times April 23, 2006

Tycoons tell Labour: pay us back now


TWO businessmen have demanded immediate repayment of their secret loans to Labour, threatening financial crisis for the party.

The formal demands, for a sum totalling at least £1.5m, will necessitate a fire sale of the party’s London headquarters to pay the debts.

The “loans-for-honours” scandal now threatens to derail the party’s campaign for next month’s local elections. Labour has a slender lead in the latest poll, with support at 35%, ahead of the Conservatives at 33% and the Lib Dems at 17%.

This weekend, speaking from his home in Monaco, Gordon Crawford, a computing tycoon whose wealth is estimated at £95m, said he had formally notified the Labour party that his £500,000 loan must now be repaid with interest. The interest, charged at 6.5%, is thought to add a further £32,500 to Labour’s debt. “The money was a commercial loan and it has already reached the end of its term,” he said. “Last month, I notified the party that it will be repaid. We are now in the period where it is due.”

The identity of the second man demanding repayment is not known. However, it is thought to be Nigel Morris, the American-based founder of
the Capital One financial services group, who lent the party £1m. He was unavailable for comment last week.

A further two of the 12 businessmen who lent Labour a total of almost £14m are also expected to demand that their money is repaid later in the year, although the party has yet to be formally notified. In total, Labour will therefore have to find at least £3.5m by October.

Sir Christopher Evans, the biotech tycoon, said this weekend that he would be demanding the repayment of his £1m loan “this summer”. Rod Aldridge, the outgoing chairman of Capita, an outsourcing company, said he is to ask for his £1m loan, plus interest, to be repaid in October.

Labour is also expecting to repay a £2m loan to Lord Sainsbury, the science minister, in July. However, sources said he was preparing to make a sizable donation to compensate for the loan repayment.

Since the start of the year, the party has struggled to attract donations from wealthy individuals. It is thought to have landed only one six-figure donation, of £250,000 in January. The Tories, by contrast, raised £6.2m from backers between January and March.

The repayment demands have shocked Labour, which initially assumed that most of the money would be written off. One Labour source told The Sunday Times last month: “The clear intention with the loans was that they should not be paid back — at least not until Blair was no longer leader.”

However, yesterday a source said: “It is now clear most of them [the lenders] are going to have their money back. They are already calling the loans in.” The only lenders said to have indicated to the party that they will extend the terms of their loans are the four men put forward for peerages — Sir David Garrard, Sir Gulam Noon, Barry Townsley and Chai Patel. Their nominations were blocked by the House of Lords Appointments Commission which vets potential peers.

On Friday, Lord Heseltine, the Tory former deputy prime minister, described the loans-for-honours scandal as “one of the most corrupt situations” he had seen in his political lifetime. Transparency International, an anti-corruption watchdog, has sent a dossier to Scotland Yard claiming that more than seven separate offences, including bribery and conspiracy to defraud, may have been committed by party officials in the scandal.

Jack Dromey, the Labour party treasurer, said he believed people around Blair “consciously” sought to exploit loopholes in the law by raising cash for the party through loans rather than donations.

Labour is now preparing to sell its Westminster headquarters, valued at £6m, to plug the black hole in its finances. However, the party is understood to have an outstanding mortgage of £5.5m from the Co-operative Bank so the sale will raise only £500,000. It is thought not to have any other saleable assets.

Party sources are confident they can arrange new finance from banks to pay off the loans. One source insisted: “There is no financial crisis. It will not be a problem.” However, senior sources contacted by The Sunday Times declined to explain where the money to repay the lenders would be found. A spokesman for the party declined to comment on Labour’s financial arrangements.

Financial experts believe the party would struggle to borrow from a bank as commercial organisations would be wary of making an unsecured loan. The loans offered by the businessmen attracted a low rate of interest.

The source said Labour turned to wealthy benefactors in the run-up to the 2005 general election, after it was refused extra credit by its bank. He added that the party would have risked losing the election had it not accepted the loans. “The party was desperate in 2005, the situation was terrible,” he said. “It is very simple . . . we wouldn’t have won the election without the loans.”

Those who lent the party money are among the country’s richest people. Crawford, 51, is one of the biggest winners from the boom in high-tech companies and made £76m from the sale of his financial software firm London Bridge Software. He is ranked 609th in this year’s Sunday Times Rich List. Morris, 47, whose fortune is valued at £360m, founded a global credit card company. He was born in Essex but is based largely in Virginia, America.

Labour’s most recent accounts, for 2004, show the party spent £2.8m more than it raised and ended the year more than £12m in debt.

Blair may now be forced to turn back to the trade unions for money, emboldening them to demand stronger influence over policy. The government recently indicated it will surrender to pressure from the unions by dropping plans to cut the generosity of pensions for local government workers.

Labour is drawing up proposals for a reform of political funding. A review is expected to recommend state funding.
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