Geoff Mulgan was Tony Blair’s chief policy guru from 1997 to 2004. He saw a thing or two while he was there, including the lists of the great and the good recommended for peerages.
As a former civil servant, he can’t say much about this, but in Good and Bad Power, his book of political theory published this summer, Mulgan lets slip his true feelings about Labour’s relationship with rich donors. Turn to page 84 and you will find the following extraordinary allegation: “In later years the scarcely concealed sale of peerages to wealthy party donors, and the appointment of the party’s top donor – Lord Sainsbury – to ministerial office, did little to restore the British public’s confidence.”
Mulgan wrote these words before the “loans- for-honours” scandal showed it was possible that crimes had been committed in raising funds for the last election. But the meaning of the words is clear: Mulgan, a man at the heart of Downing Street and party to discussions about the granting of honours, is saying that the Blair government was selling peerages.
As Labour gathers for its conference in Manchester, any meetings with potential donors will have to be more secretive than ever. The party is broke. With a suspected £27m worth of debts, it has been forced to cut spending by 20 per cent and has agreed to make 20 redundancies.
When I interviewed Mulgan for a Dispatches documentary for Channel 4, he said: “There’s no doubt that to the outside world it looked as if there was a correlation between people making donations to all three political parties and getting peerages.” Although he had no direct evidence of peerages being sold, “the level of coincidence would be fairly extraordinary”, he added.
On the programme, Mulgan refused to discuss his relationship with Lord Levy, the head of Tony Blair’s high-level donor unit, who was questioned briefly in July in connection with loans for honours. But when the camera stopped rolling, Mulgan told me that he had had several heated arguments with Levy over the years.
He was not alone. Lance Price, Labour’s former head of communications, told the programme that he had argued vociferously to make donors’ names public to pre-empt the government’s own legislation, the Political Parties, Elections and Referendums Act 2000, which obliged parties to declare all large donations.
“So I got on the phone to Lord Levy. I said I had had a conversation with the Prime Minister [and] that we wanted to go back to people who’d already given us money and say: ‘Actually, we would now like to make your name public.’ He absolutely hit the roof. I mean he was apoplectic with rage. He was threatening to resign and never work for the party again.” Price said Levy went to Blair and won the argument.
No transparency here
It is now for the police investigation to discover whether any offences were committed in the loans-for-honours scandal.
What the programme identifies is a culture of secrecy at the heart of the Blair administration that runs counter to official policy. This was confirmed by the Electoral Commission, whose inquiry was suspended when the police launched their own investigation last April. Its chief executive, Peter Wardle, told me: “I was surprised at the extent to which the parties had used loan finance. And I was surprised at the extent to which it was driven, at least in part, by a desire to avoid the transparency principle of letting people know where their money was coming from.”
Having realised that Wardle had said too much, the commission asked for parts of the interview to be cut from the programme. We decided to adhere to the transparency principle.
Certain facts in this sorry affair are beyond doubt. Labour did collect more than £13m in loans as a war chest for the 2005 election with the full knowledge of the Prime Minister. Senior officials kept these loans secret from the cabinet, the National Executive Committee, its elected treasurer, and delegates at last year’s party conference (even as they were asking conference to approve a 50 per cent hike in subscriptions).
The key now lies in the apparently technical issue of whether or not the loans were taken out at a genuinely commercial rate of interest – the sort of loan a member of the public or a regular business could take out from a bank.
Not commercial enough
Wardle was admirably clear: “The 2000 act requires that any element of a loan which is not on commercial terms should be treated as a donation and reported. The key thing is what interest rate did you pay, because that’s the figure which determines what a party would have to declare if it was not commercial.” He added: “I have no doubt that the parties were sufficiently familiar with the concept of commerciality.”
After dozens of letters, phone calls and meetings, we hit a wall of silence. No one in the government or the Labour Party wanted to talk. But after weeks of approaches, a high-level party official, who had helped the police with their inquiries, came forward and agreed to cooperate, on condition of anonymity.
The source gave me documentary evidence that the loans were taken out at 6.75 per cent per annum, the equivalent of the Bank of England base rate plus 2 per cent. Any quick internet search shows that it is impossible for an ordinary member of the public to get a loan for less than 7.9 per cent; the typical rate of interest quoted by Loans.co.uk, for instance, is 11.9 per cent.
We took the evidence to Raj Bairoliya, an accountant whose company, Forensic Accounting, specialises in complex fraud cases. He concluded: “One would normally expect a company in that sort of position, firstly, not to be able to borrow at all. Because if you have liabilities of tens of millions of pounds and you don’t have the income stream, not many banks would entertain you.”
So were the loans designed to be hidden? Matt Carter, who was then Labour’s general secretary, wrote to the lenders emphasising that the in terest rate on the loan “can be considered as a commercial rate of interest. Accordingly, the loan will not give rise to any reportable donation within the meaning of the Political Parties, Elections and Referendums Act.”
This letter has been shown to the police.
It may seem technical, but if the loans were not genuinely commercial, then the 2000 act was broken. Bairoliya told the programme: “I wouldn’t say that they are commercial as I understand the term commercial. It’s a bit like one of my friends is in difficulty and you wanted to help them out: you might give them a loan and not charge them the full rate.”
Asked what rate he would expect, Bairoliya said: “If someone did agree to give you a loan, they would expect to have a return which was in proportion to the risk they were taking. In this case they would judge the risk fairly high and they would require a margin of at least 4 or 5 per cent above base.” By this calculation, Labour should have been charged between 8.75 and 9.75 per cent interest.
In a letter to Channel 4, Labour’s current General Secretary, Peter Watt, said: “The Labour Party and its officers have acted at all times in accordance with the requirements of the Political Parties, Elections and Referendums Act 2000 and all other relevant legal and accounting requirements.”
There may, of course, be another explanation. According to my Labour Party source, who is at the highest level of the party structure and perfectly placed to know, at least some of these loans were never intended to be paid back. According to this individual, they were never loans at all but purely and simply secret donations. And has my source told the police? You bet.
Martin Bright’s Dispatches documentary will be shown on Channel 4 on 25 September at 8pm
Content from our partners
Related
