Pressure on Tories over £15m debt

The Conservative Party is coming under increasing pressure from its bankers to speed up repayment of its £15m overdraft - placing even greater strains on an already embattled Tory leadership.

A senior board member of the Royal Bank of Scotland, which holds the bulk of the overdraft, told the Independent: "We are encouraging them to reduce their debt more quickly."

He said the bank was having to tighten the screw because "a planned reduction programme" agreed between the two to wipe out the deficit has been slipping behind.

The latest blow to Tory morale came as Malcolm Rifkind, Secretary of State for Defence, became the first Cabinet minister to concede in public that John Major could face a challenge to his leadership this year.

Mr Rifkind told BBC Radio 4's The World This Weekend that "some foolish individual backbencher" might try to mount a "stalking horse" challenge, which would be doomed to failure. But as Tory backbenchers also speculated on a challenge, Mr Rifkind's admission will fuel the growing belief at Westminster that it would spark a full-scale leadership contest this autumn.

Adding to Tory despondency, the Royal Bank is understood to have moved swiftly to seize a £1.1m bequest to the party last month. John Jackson, a 79-year-old retired construction company owner from Bourne-mouth, left his entire estate worth £1,095,000 to Tory Central Office when he died.The donation from Mr Jackson, who was not even an active member of the party, is believed to have been swallowed by the bank.

Bankers were not consulted about a £4m loan made to the party by the Yorkshire entrepreneur Graham Kirkham. That loan, which was for three months, is due to expire at the end of this month. The Royal director said that if Mr Kirkham was to make his loan permanent "we would be interested in talking to the party about it".

Previously, it was widely supposed that the Royal Bank, headed by Lord Younger, a former Conservative Defence Secretary, was relaxed about the Central Office overdraft. Labour has accused the bank of showing preferential treatment towards the Conservative Party. But speaking in Edinburgh, the Royal Bank's headquarters, the senior director emphasised that that was not the case. Far from it, he said: the bank was demanding that the party sort out its financial troubles and pay off its debts.

News of the Royal's tough stance comes at an awkward time for the Tories as they enter the local election battle and look ahead to the next general election. By now the process of fundraising for the general election, due within two years, should be well advanced. Extra workers should have been put on stand-by and advertising campaigns arranged.

This time, said a Smith Square source, there was no sign of readiness for a general election and, in the wake of a slump in corporate donations, he could not foresee the party being able to match the £20m-plus campaigns of previous elections.

A senior former Conservative minister said that for the first time in recent general elections, the two main parties could be on more or less equal financial footing.

Only last week 25 staff went as Central Office shut down its constituency services department. A Central Office spokeswoman refused to comment on the Royal Bank director's remarks. "We have got a commercial agreement with the Royal Bank of Scotland and that is that. They should not be discussing it with you," she said.

While Mr Rikfind and No 10 were said to be privately angered that his remarks were being overblown, the Defence Secretary's comments contrasted with those of David Hunt, Chancellor of the Duchy of Lancaster and chief "trouble-shooter" to the Prime Minister, who earlier in the day had strongly discounted the prospect. The sole crumb of comfort came from former Chancellor Norman Lamont, who appeared to rule himself out as a potential challenger.

Labour added to the pressure by renewing its attack on Tory tax rises. Invoking a written Commons reply from Sir George Young, Financial Secretary, Labour's shadow Chief Secretary, Andrew Smith, spotlighted the 500,000 additional people who would be drawn into the income tax net at the beginning of the new financial year in 10 days. Compared with the time of the 1992 election, an extra 800,000 people were now income tax payers, Mr Smith said, because of the cut in married couple's allowance from 20 to 15 per cent from April, and freezing of personal allowance for the previous two years.

Tory funding crisis, page 2