Labour’s Money 2021

Labour’s Money 2021

The Labour Party posted ( mirror ) its 2021 accounts to the Electoral Commission site earlier this week. The papers, the Independent and the Guardian rapidly picked this up. They and Labour List focused on the first deficit in years and the loss of 91,000 members. I look at the numbers and and add the observation that individual donations are very weak, and donations as a whole remain dominated by Trade Union donations.

Figure 1:: Operating Surplus vs Membership Income

They were followed a day later by the Forensic Socialist who published (or my mirror) a presentation on twitter. Esther looks at the decline in membership and membership income, the reduction in net assets, i.e. the best measure of liquidity, the increase in running costs, including a strange and unexplained £6m item & the operational deficit, which was only transformed into a balance sheet surplus by a pension fund re-evaluation. She estimates that if Labour continues to spend like this it’ll be bankrupt (or need bank loans in 18 months).

Income

Income was £45½m which is just under £4m less than 2020, most of this reduction was due to the reduction in membership fee income which was £3.1m lower than 2020. Donations were up from a very low number in 2020, but have become dominated by trade union donations. Membership income is projected to fall further in 2022, this is based on informal surveys, we know that people have been leaving in 2022 and those that left in 2021 without resigning will still be assessed as in membership on 31st December 2021.

Figure 2: Income 2021 by source
Figure 3: History of income by source

Donations

I also looked at donations which are available on the EC site (my version) . The rich donors are not yet coming through and the total individual donor level is pretty low. The Trade Unions are once again the single largest category of donations contributing over 70% of the donation income. Of the individual donations , over half of the cash donated came from two people. I wonder if Unite (£1.7m), CWU (£500k) & GMB (£1.3m) will continue to pay at this rate.

Figure 9: Donations by category of donor 2021
F: Donations History

For these charts I have removed three trivial classes to make the charts easier to read.

Blair’s Labour Party raised over £7m in individual donations in 2005 & 2007 and even they run out of money to fight elections. Last year’s individual donations was under £1m with as already noted half of that coming from two people.

Also the Electoral Commission changed the way in which they classified Short Money and other public grants to the party. Ideally these should be removed from the chart above but disentangling the Short Money itself from the other grants would require going back to the base figures over the 11 years. The Labour Party accounts show the public grant income as a single budget head separate from donations. The electoral commission have it seems moved the Short Money from Public Funds to Other. Does the electoral commission have a minimum threshold for reporting?, How does the party account for such donations?

Expenditure

Expenditure was the highest ever, dominated by running costs (80%) which are up by £5.2m and dominated by staff costs.

Figure 4: Expenditure 2021 by classification
Figure 5: Expenditure History

It would be curious to know how much of the staff costs are recurring or can be expected to not be incurred in FY 22. How much were the redundancy payoffs, how much spent on contractors (on time limited contracts) vs staff, how much on 3rd party consultants inc. lawyers?  This increase in staff costs was despite the average number of employees being down by 10% (40 employees). It’s clear that the contractor cost of staff in Legal and Governance Unit, currently employed in searching for and expelling members and ex-members of Socialist Appeal and the AWL together with members and ex-members of the LLA; meanwhile bullying is ignored. Do the reported staff numbers include short term contractors? It is also noteworthy that the senior management team costs increased by £347K; this should be explained.

Chart, bar chart

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Fig 6: Headcount 2021 vs 2020

There is a £6m item called political activities and publication, this was trivial in 2019 and jumped to £3m in 2020 and £6m in 2021 i.e. since Starmer became Leader and Evans became General Secretary.

I note that in this year’s annual report, the General Secretary is declared as the Treasurer, I can’t imagine that’s acceptable to the bank. The report says,

The Registered Treasurer of the Party is required by the Political Parties, Elections and Referendums Act 2000 to prepare financial statements for each financial year which give a true and fair view of the state of affairs of the Party and of its surplus or deficit for that period. In preparing those financial statements, the Registered Treasurer is required to:
• Select suitable accounting policies and then apply them consistently;
• Make judgements and estimates that are reasonable and prudent;
• State whether applicable accounting standards have been followed, subject to any material departures disclosed and explained in the financial statements; and
• Prepare the financial statements on the going concern basis unless it is inappropriate to presume that the Party will continue in business.
The Registered Treasurer is responsible for keeping proper accounting records which disclose with reasonable accuracy at any time the financial position of the Party at that time and to enable him to ensure that the financial statements comply with the Act. He also has delegated responsibility from the National Executive Committee for ensuring that appropriate controls are established for safeguarding the assets of the Party and hence for taking reasonable steps for the prevention and detection of fraud and other irregularities.

Labour’s Annual Financial Report to the ELECTORAL Commission

I’d like to see and examine the IT Risk Controls and learn how often their effectiveness and coverage is reviewed. The last bank I worked for did this every 3 months.

CLP grants have fallen £900K, this is a slight fall in the grant to membership income ratio. This can be impacted by a number of things. The basic grant is based on a fixed rate payment/member. These payments will be supplemented by development grants. The membership income will depend on the number of members and the number paying a reduced fee, the average fee paid is 7!% of the full rate. It might be interesting to learn how much of this expense item is discretionary. The mandatory component is about 5% of the full rate fee, so there’s possibly some question to ask and answer about how much is discretionary and how and where it’s spent.

Figure 7: CLP Grants vs Income & Fees

Net Assets

Here is my version of the net assets position chart, showing a 2019 peak.

Figure 8: Net Assets History

I finish this review by quoting Esther,

We have seen that the most material component of income to the Party is membership income, which increased by more than 300% (£13m) between 2015 and 2020. Now this income is on the wane, with a reduction in 2021 of £3.1m, with further reductions to come.

Running costs are at an all-time high at £40.1m. The extent to which these costs include non-recurrent severance costs should be clarified. The Party must reduce its running costs in order to bring the finances into balance.

Should the Party continue at its 2021 running costs, but with income decreasing as set out above, the Party would run out of  reserves within two years

All of the above analysis is based on figures provided in the 2021 accounts and the published donation datasets. NEC members will have access to 2022 figures, but these are closely guarded. Some NEC members say they do not have access to comprehensive and understandable financial data-.

Esther Giles – “”

Questions

Is there a plan to eliminate the operating deficit?

What is the projected annual surplus/deficit for 2022?

Is there a reserve policy and is the Party meeting it?

Are all donations reported to the EC? i.e. is there a donation threshold that allows donations to not be reported? If so does the Party report everything to the EC? If not where does this money appear on the accounts?

How often and in what detail are party expenses reported to the business committee and the NEC?

How much of the staff costs are recurring and how much can we expect to be able to avoid in 2022? i.e. how much

Given the reduction in staff numbers, why is the staff cost so  high?

What is political activity and publishing?

Why has the senior management team costs risen so high?

Are any members of the SMT on personal service contracts?

Of the CLP grants how much of this is discretionary as opposed to mandated by the rule book.

Have you reserved and if so how much for either fines or compensation payments as a result of the cyber-attack?

ooOOOoo

Featured Image: from flickr CC GotCredit 2017 BY …

Energy Prices

Energy Prices

There is a consensus that Energy profiteering is at the centre of the OECD’s inflation crisis. This is exacerbated in the UK due to privatisation and asset stripping of the gas and water companies. Brexit hasn’t helped.

Boris says he’ll do nothing and leave it for the next Prime Minister, Truss says she’ll do little except possibly bung the energy industry some wonga.

The silence has been deafening but even Gordon Brown felt safe enough to make a comment.

A friend/correspondent, Paul Cotterill,  proposes his 13 point plan, which seems well thought out. There’s some complexity in the regulatory regime which currently discriminates against those that have to prepay and renewable energy providers. Another friend correspondent, the “Forensic Socialist” writes about the energy extraction companies and their profitability as the centre of the problem.

After a week, Labour come out with a plan, which focuses on households leaving businesses inc. water and councils and other public services to continue to pay too much. It’s not going to be implemented so it doesn’t really matter and if his internal critics shut-up, it might at least skewer the Tories. Labour plan to cap energy prices and tax profits, encourage renewables and insulate the coldest homes. It’s extraordinarily expensive, even if fully funded; he plans to spend in 6 months, what he was previously planning to spend, £28bn, in 5 years on investment.

Richard Murphy criticises Labour’s debt mentality, well he would, but his calling out that businesses, schools and hospitals are not being protected is valid and important

The FT, where the bourgeoisie tell the truth to each other, in an article by Stephen Bush welcomes the proposals, although they question the funding plans and whether labour get the scale and likely duration of the problem. He says,


On the other hand, it seems to my eyes to be a major problem that Labour’s big announcement on energy prices has not convinced either the energy policy experts that they have their arms around the scale, depth and duration of the crisis, or economic experts that they can plausibly fund their policies.

Stephen bush – ft

The elephant in the room is whether to nationalise the BP and Shell, which have a market capitalisation of £250 bn or as Paul Mason suggests take a golden share, or as we assume the Tories will argue that it’s unnecessary because the hidden hand of the market will provide the best answer. Personally I wouldn’t bet on the Tories holding that line, they are ideologically flexible enough to do what they think they need to do to win the next election.

It seems that Labour is making its policy in a darkened cupboard again; its biggest problem in 2019 was that late additions to the manifesto had not been socialised either within the Party or the country, and while it seems they were based on an often deep expertise, this was not visible.

The Government can control prices through OFGEM and tax profits. Why won’t they? It seems that Good Law Project are going to give OFGEM a hand. Even City AM seems unimpressed.

But this is a Tory Govt problem, I have some sympathy with those who argue that we should be attacking the Tories; it’s just that when we join the Labour Party, we expect some say in the policy platform and Keir Starmer is not giving us that.

 (So vote for me, and my running mates for Labour’s NEC and MPF, where I am standing with others for the London NPF seats, I’ll stand up for progressive policies and internal democracy). 🙂 …

What does ‘system update required’ say about Labour’s IT?

What does ‘system update required’ say about Labour’s IT?

As part of the ‘drains up’ undertaken after the 2019 General Election, a coalition calling itself Labour Together undertook a review of what went wrong and as part of that review commissioned an organisation called the "common knowledge co-op" to look at Labour’s IT and its management. They produced a report called “System update required”. (original | mirror ) What did it say? I think this is important, but like so many learning opportunities that challenge power and the bad behaviour of the powerful it seems to me to be dramatically under-valued.

When I first read it, I was outraged. I hoped to summarise it in a sensationalist fashion to see if I could interest someone who might pick it and make things better. What I have written is not that exciting and I suspect little will change because the Party doesn’t have the knowledge and experience and today is led by people who care more about their control and position within the Party than they do in winning an election and becoming a government. I mean they’d be happy to be in Government but it’s more important to them that they control the Party.

In summary, the report says, portfolio management was unacceptably poor and not accountable to the highest levels of management although they too didn’t have clue. There weren’t enough IT staff and the more numerous IT management layer wasn’t good enough. The report makes no mention of ‘requirements management’, nor of any benefits analysis tools to allow an understanding the effectiveness of the software applications provided. Labour’s voter ID/GOTV software is no longer the best. Local adoption of the IT tools is low, partly because of poor commitment to training, partly due to a high turnover of local activists and partly because the Labour machine didn’t care.

In the rest of the article, overleaf, these failings are explored in more detail. ...

On Labour’s disciplinary rules

On Labour’s disciplinary rules

As part of the ‘drains up’ undertaken after the 2019 General Election, a coalition calling itself Labour Together undertook a review of what went wrong and as part of that review commissioned an organisation called the "common knowledge co-op" to look at Labour’s IT and its management. They produced a report called “System update required”. (original | mirror ) What did it say? I think this is important, but like so many learning opportunities that challenge power and the bad behaviour of the powerful it seems to me to be dramatically under-valued.

Flow Chart of the LP Complaints process

For more, see overleaf ...

Inflation

Inflation

The Bank of England was made ‘independent’ of the Treasury in 1997, although not really, so that it could take the blame for any decisions to increase interest rates, such as those taken earlier this week (£) when the Bank increased bank rate to fight inflation.

How does that work? Inflation is believed to have one of two causes, one is that there is too much demand, chasing too few goods and consumers bid up prices. The other is that import prices are rising and thus have an impact on the domestic price level. These are known as demand-pull, or cost push. The current inflation would seem to be caused by the increase in the cost of imports especially primary energy products, exacerbated by a fall in the exchange rate.

The monetarist theory is that there is a real world and money view of the economy.

i.e.

Prices x Product = Money Supply x Velocity of Money

PQ = Mv

This equation is derived via definitions and algebra and thus there is no proof of causality. Monetarists say that reducing the money supply will reduce prices. This assumes that in the short term both the velocity of money and the amount of product are static. Recent econometric studies suggest that the velocity is not constant, and there has always been a problem of defining what money supply is as it must include some credit and so is very difficult to constrain. We should note that consumer credit can be increased very rapidly so can no longer be consider static.

There can be no doubt from studying economic history, that increasing interest rates to reduce the money supply causes a recession, unemployment and poverty. It’s also highly likely that unionised workers will demand higher wages to defend their living standards. In a world where business is internationally mobile, business will defend its profits by increasing prices and/or off shoring the work; this is the wage-price spiral where an economy has high inflation, both cost push and demand pull and low growth.

The drivers of growth and/or the floor to a recession are investment, exports or government expenditure, especially benefits. Increasing interest rates makes investment and the national debt more expensive. It makes exports cheaper in their foreign markets but of course the big factor in the export price uplift is Brexit. Higher interest rates increases the income on savings and the expense on business and domestic borrowing. A squeeze on profits will cause capital to go overseas, especially if the exchange rate is high although this may be ameliorate by the increasing yield in bonds. The other cause of the economic malaise is the poor investment rates by both the private and public sector in the UK.

There can be no doubt that increasing interest rates will cause unemployment. This is how it reduces demand.

The other option to monetary policy is product supply, direct investment such as the EU’s Horizon Europe programme or price regulation to cause a profit squeeze, tax the energy companies and banks, build more houses, control profits, transfer income from the wealthy to  the poor because the poor spend more of their income and of course rejoining the EU’s single market to reduce both import and export frictional costs.

High interest rates are a choice, a choice of theory and a choice of policy. The inconvenient truth is no-one knows if it works.

ooOOOoo

I conclude with some links to key commentators, professional economists. David Blanchflower, writes in the New Statesman, “The Bank of England is recklessly driving the UK into a deep recession”, he warns of the threat of unemployment, elsewhere on his twitter feed he is highly critical of the Bank and its Governor, Andrew Bailey, He is also quoted in a video clip by C4 on twitter, stating that unemployment hurts people more than inflation, which can be seen to be a declining threat. Anne Petifor exposes the role of the global capital markets in ‘managing’ food and energy costs, Richard Murphy provides a modern monetary critique of the theories. I particularly like his calling out of the role of import prices and speculators,

There is a third reason why the BoE policy will not work. It’s not just the assumption that people have too much to spend that the BoE get wrong. They have actually totally failed to identify the proper cause of this inflation.

The inflation we’re suffering is the result of shortages of oil, gas, fertiliser and food, in the main. Some of these are real (food, in particular). Others are being stoked by speculators who are profiting from them, which is why oil companies are declaring such big profits now

Richard Murphy – On Twitter

The featured image has been taken from Blanchflower’s New Statesman article where he asserts its a BoE MPC authored chart. This I assume can e used under the OGL license.  …

Crime and Punishment (in the Labour Party)

Crime and Punishment (in the Labour Party)

I have not studied all the new rules as passed at 2021 conference, but this is a note on proscribed acts and prohibited acts and how they are dealt with. It notes the powers of the NEC to define prohibited acts in the support of proscribed organisations. It notes the remaining role of the NCC and concludes with a quote from the Forde report expressing concern of the use of admin suspension and the concern that expulsions may be used for factional purposes. For more, use the 'read more' button ...

Some thoughts on IS programme management

I wrote a note on information systems programme evaluation and management on my linkedin blog. It considers business value vs reliance and observes that this technique permits the management of software products to have different governance policies, that measuring competitive advantage is hard, that IT strategy must be aware of business strategy which will drive the build vs. buy decision together with other project management decisions. Importantly it decries the practice of buying and adapting a software package. These ideas were first taught to me by Dan Remenyi. …

Labour’s macro-economics, “Back to the Future”

Labour’s macro-economics, “Back to the Future”

Starmer made another speech on economics on Monday 25th July. It is reported in the Guardian.

Starmer has been trying to pitch Labour as the party of fiscal prudence and will say: “With me and with Rachel Reeves [the shadow chancellor], you will always get sound finances; careful spending; strong, secure and fair growth. There will be no magic-money-tree economics with us.”

From the Guardian,

This article looks at growth and debt, Starmer and Reeves flirtation with Osbornomics and Reeves' rejection of nationalisation on the grounds of cost, I note countervailing views from Murray and Long Bailey and note that Reeves places herself in the sad queue of shadow chancellors undermining Labour's election chances by 'telling the truth'. There's more overleaf ...

More consequences of Labour’s cyberbreach

More consequences of Labour’s cyberbreach

The Labour Party can’t issue the ballots for their internal elections; they claim it’s a consequence of the cyber-breach last October.

The Party seems to have attempted to create a replacement membership database by updating its mail manager system and presumably adjusting the feeds although much of the functionality previously offered is no longer available and the feed from the financial system is now days or weeks out of date. We should note that the membership self administration tool is also now not available. The mail manager is obviously from observation slowly dying. It is known to be inaccurate; there are errors in terms of who it considers to be a member, their addresses, and their payment status.

The Party plans to replace this recovered system with an off the shelf package[1] from Microsoft. At the moment we are advised that it is unlikely that local party role holders will get access to this until next year.

Until then we have to use a known to be inaccurate database. From observing, presumably NEC authorised actions, it seems to be considered accurate enough to select councillor candidates and run trigger ballots. Procedure Secretaries have been told that they may not override the membership system even when variances are well known and provable. I question that this is legal in it breaches the duty to be accurate and not to automatically profile people.

What seems to be forgotten that is data protection rests on seven principles, Lawfulness, fairness and transparency · Purpose limitation · Data minimisation · Accuracy · Storage limitation · Integrity and confidentiality. Often too much or too little attention is paid to integrity and confidentiality and issues such as lawfulness, fairness, transparency and accuracy are forgotten.

They are running selections and triggers on data known to be inaccurate. This isn’t right.

This has taken 9 months to get here. While culpability for the breach may be questionable, not having a recovery plan and or not funding it is the fault of the Labour Party and thus its NEC. CEO’s have been fired for less.

Why was there no recovery plan? Did they do vendor due diligence on the member centre hosting provider, did they keep it up to date? Is there a risk register? Has the NEC or the risk committee approved the mitigations? In fact, what is the NEC doing about IT Risk? Is there a DPIA on reusing the mail system? Is there a DPIA on reusing the SAR Tool? Is there a DPIA on using the social media scanners they use? When will we get a data protection capability that protects members data from bad actors rather than from themselves?

Nine months failing to recover is shameful and unprofessional. NEC members should be asking why it has come to this and determine if they, through their inaction, are in fact culpable.


[1] This I consider to be wise, although they will need additional software modules to support Labour’s unique processes, such as donation monitoring. Although it seems they plan to customise the UI 🙁 …