Labour fears loss of Co-op’s £1m gift, not its loan

As pieces of political spin go, it was up there with the best – even if it concerned the dry subject of Labour’s banking facilities.

This morning, the BBC reported that it had “learnt” that the party was looking at ending its 80-year relationship with the Co-operative Bank. It was heavily implied that this was a Labour initiative caused, in part, by recent controversies at the bank which it no longer wished to be a part of.

But as with all things that are spun, there is a risk that they will unravel.

And by this afternoon, the party was facing charges that it had been rather economical with the actualité and that it was, in fact, the troubled Co-op that wanted to sever its relationship with Labour, and not the other way round.

Ever since US hedge funds forced the Co-operative Group to relinquish control of its banking arm last October, there have been strong suggestions that the new management was looking to end its long-standing relationship with Labour – to which it currently loans more than £1.2m.

And today, sources at the bank made it clear that far from Labour approaching it to transfer its loan elsewhere, it was the bank that told Labour it was no longer keen on its business.

“We are not looking at big organisations any more,” a source at the bank recently said. “We are looking to move non-core customers elsewhere.”

It is understood that in discussions, Co-op informed Labour it was going significantly to increase the charges in relation to the loan – triggering the move.

But what is difficult for Labour, in a political rather than a financial sense, is where the party intends to move its loan facility to.

Its general secretary, Iain McNicol, is understood to want to transfer it to a small financial institution called the Unity Trust Bank, with which the party already has a loan facility.

But, uncomfortably for Labour, Unity is owned and controlled by the trade unions, and Dave Prentis, the general secretary of Unison, is its president. While in reality this gives the unions no more say or control over the party than at present, it has given the Tories a new form of attack to suggest that Ed Miliband is in the pocket of union interests.

The switch will effectively draw a line under a financial relationship going back nearly a century. The co-operative movement and Labour joined parties in the 1920s and the link-up with the banking arm is believed to have started then.

The Conservative Party’s chairman, Grant Shapps, was quick off the mark to make hay of the new relationship. “These proposals would hand the trade unions even more control over Ed Miliband and the Labour Party,” he said.

“The unions already pick the candidates, buy the policies and choose the leader. Now Ed Miliband wants them to hold the purse strings as well.”

This is clearly nonsense but it could still be damaging. Labour stresses that the loans will be on a purely commercial basis, and given that unions are already major donors it does not change the relationship with the party in any way.

But there could be further problems ahead. It is still not clear whether the wider Co-operative Group will continue to make political donations to Labour, which it has done even during the past few years of turmoil.

The group makes donations of up to £1m a year to the party and to MPs including Ed Balls, the shadow Chancellor. If they should dry up, the results will be financially uncomfortable and will also need all the spin they can get.