Despite laying off staff and cutting costs the Labour Party operated at a loss last year, according to figures given to the Electoral Commission.
Sir Hayden Phillips is chairing cross-party talks on political funding
Labour recorded an £814,000 deficit, compared with surpluses of £4.2m for the Tories and £1.2m for the Lib Dems.
The commission is to fine the BNP, the Co-operative Party and Scottish Lib Dems for filing their accounts late.
Meanwhile attempts to get agreement on funding reform have made "significant progress", says Sir Hayden Phillips.
Sir Hayden, who is trying to get cross-party agreement, said on Tuesday: "I believe we are nearer to a comprehensive agreement on a range of measures to reform party political funding."
Despite some "outstanding issues", he said it was agreed that talks would be concluded by mid-October.
The Labour Treasurer's report compares its £814,000 deficit to that of £14.5m the previous year.
It said staff numbers had been reduced, from 291 to 158 and reduced spending by 15% so the party was "living within its means".
Its former headquarters at Old Queen Street had been sold off and offices across the country were "under review" it said.
The party was still £26.2m in debt when the report was drawn up at the end of 2006 - with the Tories £9m in debt.
The Conservatives meanwhile, excluding loans being converted to donations, raised £14.9m - compared with Labour's £5.41m in donations. They repaid £5m worth of loans.
The Lib Dems' 2006 income was lower than the previous year - as a lot of money had been raised for the 2005 general election - raising £5.8m.