Tony Blair left some serious incendiary devices behind for his successor: some he has defused (supercasinos, 24-hour licensing), some he has not (identity cards, extension of pre-trial custody, Iraq). But none has proved quite as lethal as party funding. The ongoing scandal has forced Peter Watt to resign in disgrace as the general secretary of the Labour Party. It may secure other scalps.
Watt’s downfall was brought about by the revelation that he had known of secret donations from the Newcastle-based property developer David Abrahams. But for me it is mystifying that he was still in post after the cash-for-honours fiasco (Blair’s most explosive parting gift to the Labour Party). As the top official in the party, Watt presided over the darkest year in Labour’s recent history.
I will never forget the 36-year-old Watt’s toe-curling speech to the Labour party conference in Manchester at the height of the peerages scandal in 2006, when he told an astonished hall how proud his mum was of her little boy. I wonder what she must be thinking now. At the time, I was making a documentary about Labour’s secret loans for Channel 4’s Dispatches and I was surprised that senior figures in the party hadn’t clocked what a political liability inexperienced people such as Watt had become. His predecessor, Matt Carter, a fellow adolescent apparatchik, had failed to inform the Labour conference or the National Executive Committee of loans that would destroy the party’s already shaky reputation for probity.
The stature of the general secretary has diminished over recent years. Traditionally, this was a job that someone took on as a vocation. In the first 80 years of the Labour Party there were just seven general secretaries, several lasting more than a decade, among them big beasts such as Tom Sawyer and Larry Whitty (who has been charged by Gordon Brown with the task of trying to sort out the mess). Carter and Watt lasted just three years between them.
It was clear to me and the team making the documentary that the baby-faced general secretary did not have the strength of character to institute the changes needed to reform Labour’s woeful donor culture. As it happens, it was even more grave: as it now appears from the latest saga, Watt himself was fostering the very culture of smoke and mirrors many hoped the party would put behind it in the Brown era. Why did Brown and other senior people in the party not realise that Watt was a roadside bomb on the route to transparent government? During his monthly press conference I asked the Prime Minister precisely this question. Surely he had realised Watt was trouble during “cash for honours”? But apparently not. In Brown’s response he merely hid behind the police investigation into Labour’s loans, which had not fingered Watt (or anyone else, for that matter). As far as he was concerned there was nothing to be worried about in Watt’s handling of the peerages affair.
It has always been my contention that Brown’s government would be in big trouble if it did not realise that the cash-for-honours revelations had identified a canker eating at the soul of the party. The fact that no one was convicted of a criminal offence does not mean that the Labour Party was given a clean bill of health. Brown cannot draw a line under party funding issues until he addresses its implications. His reaction, at Prime Minister’s Questions, was to declare unequivocally his determination “to make political party finances above board”. We shall see.
In a sense, the police investigation into “cash for honours” was a dangerous distraction because it identified the wrong offence. As we suggested in the Dispatches documentary and the New Statesman at the time of the Labour conference in 2006, the real issue was the Labour Party accounts of 2004, which were not signed off until after the loans were received in early 2005. These accounts should have contained a record of the loans as (in the accountancy jargon) they were “material post-balance sheet events or liabilities”.
This is quite a technical financial matter, which is perhaps why it didn’t catch the public imagination or that of the police in quite the same way as the headline-grabbing charges of “selling honours” or “perverting the course of justice”. But Brown, with his legendary financial brain, was quite capable of grasping what was really going on.
Since these revelations about the accounts were first made, Private Eye has been one of the few publications to have continued to pursue this story. Last month, the anonymous author of the “In the City” column pointed out once more that Assistant Commissioner John Yates and the Crown Prosecution Service might have spent their time more fruitfully asking why these sums were not disclosed in the accounts and why the party’s auditors, Horwath Clark Whitehill, were not informed. On the face of it, both are criminal offences under the Political Parties, Elections and Referendums Act 2000.
Serious questions
Again, Peter Watt was never the man to grasp the nettle. Although his predecessor was responsible for the loan, when I doorstepped Watt at a Labour NEC meeting last year to ask him when the auditors were first told about the loans, he scuttled away saying he was late for a meeting. A statement from him simply claimed the rules on donations had been followed.
Now the Abrahams donations threaten to suck in a whole layer of the Labour Party hierarchy. Claims that no one but Watt knew what was going on are already unravelling. As the story broke, one former Labour fundraiser told me: “It just doesn’t wash. You make it your business to know your high-value donors in the same way a detective gets to know his suspects. It is inconceivable that people didn’t know who David Abrahams was.” And so it proved to be over the hours that followed: Baroness Jay knew enough to warn Hilary Benn not to touch the money from an Abrahams intermediary; Tony Blair’s agent John Burton knew him, and now, it is revealed, so did Brown’s chief fundraiser, Jon Mendelsohn. Harriet Harman’s decision to take money from an Abrahams employee raises disturbing questions about her judgement. Her husband, the Labour Party treasurer Jack Dromey, also needs to clarify what he knew and when.
Is there anything positive to be taken from this disastrous turn of events for Labour? The Tories cannot afford to be too smug about their donors. The Conservative Party is now in effect owned and run by its deputy chairman Lord Ashcroft and there are reports that the mysterious Midlands Industrial Council has funded the shadow home secretary, David Davis, to the tune of £40,000. But so far, within senior Labour ranks, only the Communities Secretary, Hazel Blears, seems to have realised how dreadful the Abrahams fiasco must look to the electorate.
The first step to recovery is for Gordon Brown to recognise the gravity of the situation. His only solace is that when you’re at rock bottom, the only way is up.
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