Labour on the verge of bankruptcy

John Prescott warns of possible financial meltdown as Labour faces debts of £20m.

John Prescott, who is campaigning to be elected Labour treasurer, issues a stark warning about the state of the party's finances in today's Guardian:

The Labour Party stands on the verge of bankruptcy. We are more than £20m in debt, facing a long-term decline in membership and a crisis in funding.

We are only kept alive by the Herculean work of party staff and volunteers, trade union contributions, high-value donations and the goodwill of the Co-op bank.

This isn't the first time Labour has faced a cash crisis in recent years. Before the election David Blunkett memorably admitted: "We are trying to be careful so we don't end up bankrupt after the election if this all goes pear-shaped."

Prescott also takes a sideswipe at Gordon Brown over the huge cost of the "election that never was": "[T]he so-called 'election that never was', in 2007, cost the party £1.5m in preparation costs which could have been spent on funding the disastrous 2009 European and local elections, for which Labour ran no real campaign."

It'll be worth watching to see whether the parlous state of the party's finances boosts David Miliband's argument that Labour needs a leader who can attract cash-rich donors. Since the beginning of the campaign he has raised well over £300,000 but has sensibly chosen to contribute one-third of that total to a "fighting fund" for the party.

George Eaton is political editor of the New Statesman.

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Why relations between Theresa May and Philip Hammond became tense so quickly

The political imperative of controlling immigration is clashing with the economic imperative of maintaining growth. 

There is no relationship in government more important than that between the prime minister and the chancellor. When Theresa May entered No.10, she chose Philip Hammond, a dependable technocrat and long-standing ally who she had known since Oxford University. 

But relations between the pair have proved far tenser than anticipated. On Wednesday, Hammond suggested that students could be excluded from the net migration target. "We are having conversations within government about the most appropriate way to record and address net migration," he told the Treasury select committee. The Chancellor, in common with many others, has long regarded the inclusion of students as an obstacle to growth. 

The following day Hammond was publicly rebuked by No.10. "Our position on who is included in the figures has not changed, and we are categorically not reviewing whether or not students are included," a spokesman said (as I reported in advance, May believes that the public would see this move as "a fix"). 

This is not the only clash in May's first 100 days. Hammond was aggrieved by the Prime Minister's criticisms of loose monetary policy (which forced No.10 to state that it "respects the independence of the Bank of England") and is resisting tougher controls on foreign takeovers. The Chancellor has also struck a more sceptical tone on the UK's economic prospects. "It is clear to me that the British people did not vote on June 23 to become poorer," he declared in his conference speech, a signal that national prosperity must come before control of immigration. 

May and Hammond's relationship was never going to match the remarkable bond between David Cameron and George Osborne. But should relations worsen it risks becoming closer to that beween Gordon Brown and Alistair Darling. Like Hammond, Darling entered the Treasury as a calm technocrat and an ally of the PM. But the extraordinary circumstances of the financial crisis transformed him into a far more assertive figure.

In times of turmoil, there is an inevitable clash between political and economic priorities. As prime minister, Brown resisted talk of cuts for fear of the electoral consequences. But as chancellor, Darling was more concerned with the bottom line (backing a rise in VAT). By analogy, May is focused on the political imperative of controlling immigration, while Hammond is focused on the economic imperative of maintaining growth. If their relationship is to endure far tougher times they will soon need to find a middle way. 

George Eaton is political editor of the New Statesman.