A Question Of Class

As manager of Britain's finances, Gordon Brown earned a reputation for careful accounting. Whether it was deserved is an open question, but his party's bookkeepers are clearly struggling. Labour's debts total more than £20 million, and donations are tumbling along with the party's fortunes at the polls. Without a bailout, bankruptcy looms.

For Brown, that's more than just an embarrassment. As private donors turn away, Labour has become more reliant on its traditional backers, the trade-union movement that founded the party more than a century ago. In the first quarter of 2008, union contributions accounted for 80 percent of the party's £3.1 million in donations, up from just half of the £5 million collected in the same period last year. Already the renascent Conservative Party is gleefully warning of a corresponding rise in union influence. "Mired in debt, the Labour Party is being held over a barrel by union leaders," says Conservative shadow minister Francis Maude.

Certainly, Labour is in need of generous friends. It must repay up to £14 million in loans from banks and wealthy supporters before Christmas. Membership has been halved to about 200,000 since the late '90s, and while its donations dwindle, the Conservatives saw a £2 million jump in donations in the first quarter. Worse, Labour's constitution leaves the members of its supervisory body—including Brown himself—personally liable for its debts.

To understand how this happened, look back to the '90s, when Tony Blair wanted to attract middle-class voters. He knew financial ties to the unions were a reminder of the party's socialist roots. So fund-raisers courted left-leaning millionaires, like publishers and property magnates, ready to be charmed by a charismatic prime minister. Sidelined in policymaking, union leaders could no longer expect their regular invitations to Downing Street. "Under Blair, the relationship [with the unions] was always prickly and distant," says Sunder Katwala of the Fabian Society, a center-left think tank. "There was a certain lack of mutual understanding and respect."

But dependence on private cash also brought dangers. Donors that will open their checkbooks for a popular party, stop doing so for a foundering party with a dour leader. Further hurting fund-raising was an investigation in the last years of the Blair government that the party was trading honors—particularly places in the House of Lords—for hefty donations. No charges resulted, but the taint deters potential sponsors, who don't want to face allegations of buying a place in power. "There is no reason why anyone should be ashamed of giving money to the party," says Labour M.P. Martin Linton. "What they resent is the way their motives are misinterpreted by the press."

The long years on the political sidelines also means the unions are in little mood to tap their own reserves. Although Labour brought some welcome changes—a national minimum wage, for instance—they have done little to roll back the antiunion legislation introduced by the Conservatives in the '80s. In a speech to his union's conference last week, Paul Kenny, leader of the giant GMB, was emphatic. "No members' money will be going to pay off loans that the Labour Party took from multimillionaires who now want their money back … Not a single penny."

Nonetheless, the unions will be sorely tempted to use the financial leverage they now wield. When the party's National Policy Forum meets next month, it can expect to hear much from the unions about the need to compensate workers for hardships caused by the economic downturn. Public-sector staff are unhappy with a 2 percent cap on pay increases. Union leaders dislike the government's continuing commitment to more privatization of public services.

For Labour, the temptation to make concessions may be strong. Watch out for the occasional conciliatory gesture and perhaps—in private—a softer line on pay. But Justin Fisher, an authority on party funding at Brunel University in London, says a full-blown return to old Labour alliances "would be political suicide for both the party and the unions." Labour leaders know voters would disapprove of any overt sign of yielding to union pressure. And union bosses know they may ultimately have to help pay Labour's bills even without getting anything in return. Unions, after all, can expect even less sympathy from a Conservative, and for their members it's better to have a Labour prime minister in Westminster than a Conservative—whatever the price.