Heald insists Tories are not bust

The constitutional affairs spokesman was speaking a day after Labour denied its own financial crisis after a report undeclared loans are to be called in.

Earlier this year it emerged that both the main parties had borrowed large amounts to fund their 2005 campaigns.

The Electoral Commission has said using secret loans to get around funding rules breaches the spirit of the law.

The Committee on Standards in Public Life is looking into the role of the Electoral Commission and Mr Heald's evidence will form part of that inquiry.

He said the rules at the time of the election stated political parties had to tell the election watchdog only about donations or non-commercial loans.

The Tories had therefore followed the rules as they had borrowed cash at a commercial rate.

Mr Heald said Conservatives backed plans to reform party funding and believed it was important any cap on donations applied to trade unions as well as companies and individuals.

Stable finances?

But he added that without an increase in public funding for political parties it would be very difficult to introduce a cap on donations.

When standards committee chairman Sir Alistair Graham pointed out taxpayers did not have to help companies when they went bust, Mr Heald replied that Conservatives were not bust - indeed, he said, the party had an excellent credit rating.

Labour chairman Hazel Blears, meanwhile, defended trade union backing for Labour.

"There is a view that trade union donations include affiliation. I think there is a very strong argument that affiliation fees are actually the aggregate membership of millions of people who want their trade unions to be collecting for us in the way they have been for over a hundred years."

She added: "There is a lack of understanding about the way in which certainly our party is a federal organisation of different kinds of membership and that organisations are members in themselves."

Sir Alistair said: "It sounds a bit like special pleading for the Labour Party, to be honest."

On Wednesday Ms Blears denied Labour faced financial crisis after a report that backers want loans worth millions returned.

Channel 4 News reported £6m of the £14m lent to the party in undisclosed loans was due to be paid back this year.

Ms Blears said funds were "tight" but senior officials insisted the situation was manageable.

The elections watchdog has said using secret loans to get around funding rules breached the spirit of the law.

Ms Blears said: "We certainly don't have a crisis. Money's always tight in political parties, it's always tight the year after an election.

"We need to raise funds. Doing politics in a democracy costs money for campaigning and getting our message across and that's what we intend to do."

State of democracy probe

The chairman of the party's ruling National Executive, Sir Jeremy Beecham, said: "I am confident that the party will manage its way through this. I think we are in a robust position, potentially.

"I am not saying for a moment that the position of our party is wonderful on the financial side, but if I was the chairman of the Conservative Party I think I'd be inclined to say 'I'd rather have Labour's debt than mine', because the Conservative Party's debts are about £30m - probably about 50% bigger than ours."

Channel 4 News reported that Sir Christopher Evans, founder of Merlin Biosciences, is due to be repaid £1m in late summer and Priory Clinic boss is owed £1m by August.

Rod Aldridge ex-chairman of Capita is owed £1m by October, stockbroker Barry Townsley is owed £1m and propety magnate Sir David Garrard £2.3m both by next spring.

A Labour Party spokesman said: "The loans are scheduled over a variety of periods from six months to several years and the full financial figures of the Labour Party will be published over the summer in our annual report 2006."

He added that the financial situation of the party was "stable".

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