What is the estimated cash flow of a political party?

The Electoral Commission has reported the very large debts of the major political parties.  Collectively they owe £58 million.  The Conservatives, however, have plans to sell their old head office building in Smith Square, worth about £30 million, so it is Labour which is under the greatest pressure.

I find myself most interested in two banking questions.  Loans had to be declared under the old rules unless they were “on commercial terms.”  How do banks normally assess lending to bodies such as political parties?  What therefore would be normal commercial terms?

Obviously banks would look for security, which would normally – but not always – consist of property.  Of course, some property can be unsatisfactory.  In the reign of Edward III a Genoese banker loaned money to Fountain’s Abbey against the security of the Abbey.  When the time came to collect, they found that Fountain’s Abbey was not a liquid asset.  There must be similar unsaleable properties in the twenty first century.  No bank would lend money to the Crown against the security of Buckingham Palace.

Probably a sophisticated bank would lend against future cash flow.  Unfortunately, the cash flow of political parties is very irregular.  Large sums come in around the time of General Elections – but that is also the time of the heaviest spending.  Parties often emerge from elections in worse debt that they went into them.  If I were a banker, I would hesitate to lend to political parties at all.  The sums would be too difficult to calculate.

Comments

[Andrew Forbes]

Both parties spend a vast amount on advertising which normally results in laughably bad and patronising slogans, which I don't suppose win a single vote. I'm sure they could agree a truce on this, save the cash and spare us all. +

However imperfect the current system; never, never, never state funding.

[Chris Partington]

On the subject of money and political parties.
How does a Prime Minister on £50,000 salary per annum retire with a near £4Million personal fortune?

[John Charlesworth]

However imperfect the current system; never, never, never state funding.

I agree. MPs and Councillors of all Parties earn thousands just for being MPs etc. They should fund the Party more, out of all the £0000's they make collectively: not the taxpayer.

[A Owen]

Lord Rees-Mogg said: 'Probably a sophisticated bank would lend against future cash flow.'

All banks, not just sophisicated ones, lend against future cash flow - ie, they do not lend with a view to exercising their security over collateral.

The fact that a large element of the Labour and Conservative parties' funding has come from weatlthy individuals suggests that these loans might not be on commercial terms - a point that was recently made by Matthew Parris. The parties seem to think that the mere assertion that the loans are at an arm's length is enough to support their respective cases. However, the matter should be assessed objectively. These loans appear to have modest margins over base rate and I am surprised that the parties consider such rates sufficient given that many of the loans are unsecured (cf unsecured lending to smaller corporates). Of course, I might be wrong.

To that end, I should like the parties to publish the terms of these loans and demonstrate that they are at arm's length - say, by comparing them to unsecured corporate rates available to unlisted companies. Until they do, I think an element of scepticism is justified.

[Mark Steele]

Lord Rees Mogg. I would have prefered an e mail address, however a blog will do. Government policy on raising cash has been a sordid affair I am assured though that the attorney general will be able to as he has just done, pervert the course of justice. It must be great for our detractors around the world to admire the way that we can put the British criminal justice system to one side when need be. Who's are the Swiss bank accounts with all the cash in I wonder? It must be great to be above and beyond the law. the 100'000 proposed rise made to MP,s will do a great job at making them more compliant to government. What is to become of us

Mark Steele