First, let’s get a few things straight. The Co-op Bank is not the Co-op Group, and is not the Co-op Party, a separate political party which sponsors MPs, among other things. Problems for one does not necessarily mean disaster for all three.
And there are two further stories currently being bandied around, both fallacies. And a third story, which no-one seems to be telling, which is the truth.
Fallacy one: the Labour Party is tainted with the scandal of Paul Flowers. Tosh.
It is no more Ed Miliband’s fault that his banker was found to have dodgy personal habits and was not apparently a very competent chairman, than it is any of the thousands of business or charitable customers of the bank who were similarly disappointed.
No, the attempt to link Flowers to Labour is a rather desperate attempt by the Tories and right-leaning newspapers to succeed where they have largely failed in getting the public’s attention over Falkirk; a matter over which, in stark contrast to the Co-op, the party’s behaviour is open to serious question.
Fallacy two: the Labour Party will be broke because of the loss of donations from the Co-op. Wrong. There are currently 32 MPs sponsored by the Co-op Party who have been told, according to the Guardian, that they might face
a 30% cut in funding. What is the worst that can happen to them? Well, it’s that they might have to do what other MPs do: raise funds themselves to fund their constituency offices. So what?
A bit of a back-of-the-envelope calculation: funding of the Labour Party during the first ten months of 2013, above the minimum donation threshold, from organisations containing the word “Co-operative”, amounted to the princely sum of £17,478.25 (by all means check my calculation at the Electoral Commission here). Even allowing for a margin for error, compare that to the millions the party receives annually from trade unions and you can see how ludicrous it is to think the party’s funding will be seriously hit.
The third point is not a fallacy, sadly, but it is the one no-one seems to be focusing on.
It’s very simple: for many years, Labour has had a very useful and fruitful relationship with the Co-op Bank. Even when the party was pretty broke, which it usually was after elections, they were decent and helpful about the overdraft. They have been good comrades. The result of recent problems, even were it not going to happen with the rescue of the Co-op Bank announced this summer, is that different stakeholders – and shareholders – now matter.
As Uncut’s Atul Hatwal pointed out last July, one result of the reworking of the party’s relationship with unions is that the size of its whole income stream over future years is now in question.
Now, this was OK when your bankers were good comrades who would understand the vicissitudes of the electoral cycle and that fundamentally they and the party’s affiliated unions would never see the party go to the wall.
As any banker will tell you, the interest rate charged on any loan is largely based on having complete information on the borrower. The better they understand your operation, the more likely you are to get a good interest rate, because better knowledge generally lowers the risk they are taking.
Even if the analysis were perfectly politically neutral, it surely would not be as generous as that of the ancien regime at the Co-op Bank. However, there’s more to it: the Guardian also notes that the bank is now being advised by Quiller Consultants, a firm run by a former special adviser to…ah, one David Cameron. Get the picture?
When the party’s debts are looked on with colder, more objective eyes, especially those who might just have connections with the Conservative Party, it seems somehow especially unlikely that generous terms will be offered to a party whose income stream is yet to be agreed (and will largely depend on negotiations with unions between now and spring conference as to what that will mean).
This trouble for the Co-op could not have come at a worse time for Labour, because there is a similar effect to a donations crunch: it increases the short-term pressure on Miliband not to go through with his reforms and to accept union donations in similar amounts as before. If this plan were not on the “too difficult” path before, it surely is now.
Either his gamble pays off, and the party gains as much, or more, in membership subscriptions from new members coming from unions than it will lose in union donations; or the party not only becomes broke, but is then further restricted on its borrowing to fill the gap, as lines of credit have been shortened.
Finally, as all creditors know, the more debt you get into, the higher the rates; the higher the rates, the more debt you get into. Without a friendly banker to hand, Labour certainly cannot afford to let its debt spiral.
In the long term, paradoxically, this may even be good for the party. It will certainly impose a financial rigour to an extent never before required on the party’s finances. It could even prevent in future those perennial twin curses of the party; politicians who think that the party has a never-ending supply of funds to finance their spending whims, and general secretaries who only want to say “yes” to them. But in the short term, it can spell only further pain for the party.
In short, it is very likely that, of all the silly things being claimed to result from the demise of the Co-op Bank as we know it, the thing Labour is likely to miss more than any other is the easy-going nature of its overdraft.