Cash-for-peerages scandal forces Labour to rely on union money

Scandals such as the cash-for-peerages affair have driven the Labour Party back into the arms of the trade unions, who funded it for almost a century until Tony Blair began to attract big money from multimillionaire supporters. Accounts published yesterday show that Labour is still fighting to repay £28m in debts run up during last year's general election. That includes £14.7m still owed to just 12 wealthy individuals. But there have been no new loans since the start of a police investigation into allegations that fundraisers were trading them for seats in the House of Lords, a charge Labour denies.

The accounts also show that donations are down to a trickle. The dearth of financial contributions is causing anxiety among party staff, who were sent a circular earlier in the week from the general secretary, Peter Watt, denying a rumour that the party might not be able to pay this month's wage bill.

The giant transport union, the TGWU - historically the Labour Party's main source of funds - is again its biggest backer, having donated more than £600,000 in the three months from 1 April. The engineering union, Amicus, gave £500,000. There were also large contributions from the public sector union, Unison, the GMB general union, the postal workers' union, the CWU, and the shopworkers' union, Usdaw.

According to research by Conservative Party staff, the unions accounted for three-quarters of Labour's income over three months. Two wealthy backers, the financier Nigel Doughty, chairman of Nottingham Forest FC, and Sir Ronald Cohen, head of Apax Partners, each donated £250,000. Overall, Labour received £6.3m in donations in the first half of 2006, compared with £35m in all of 2005.

The Conservatives received £14.8m in donations in six months - just under £9m in the first quarter and nearly £6m in the next three months, coming to more than their income for the whole of 2003. But more than half the £5.9m donated to the Tories in the second quarter came from a handful of sources. The London-based RF Trustee Fund gave just over £1m. The firm IPGL gave another £1m, and four individuals donated more than £1m between them.

Sir Jeremy Beecham, chairman of Labour's national executive, said: "There's no doubt that David Cameron has persuaded some Tory sympathisers to start donating again, while some of ours have wilted. But we are getting our finances under control. The unions have always been a significant source of funds for us."

The Tory party chairman, Francis Maude, accused Labour of pandering to "cronyism", saying: "Labour is almost entirely dependent on the unions for funding. In return, they're getting pet policies and bungs with taxpayers' money."

However, the Tories were under fire from Labour and the Liberal Democrats for not declaring all the loans they had received - which they will be required to do under a law which comes into effect in September.