I’ve always been slightly sceptical about the financial difficulties that the Labour Party is in, in that whilst they might result in Labour having to make big spending cuts I find it hard to believe that when push comes to show the trade unions would really let Labour go under financially (as opposed to playing hardball right until the last moment in order to extract concessions on policy and organisational influence).

It looks as if Labour is doing its very best to put my belief to the test for today’s Guardian reports:

The party has five weeks to find £7.45m to pay off loans to banks and wealthy donors recruited by Lord Levy, Tony Blair’s former chief fundraiser, or become insolvent. A further £6.2m will have to be repaid by Christmas – making £13.65m in all. The sum amounts to two-thirds of the party’s annual income from donations.

The figures are a conservative estimate as they do not include interest that will also have to be paid. A Labour source said that although the total debt was listed as £17.8m on the Electoral Commission website, the true level, with interest, was nearer to £24m.

The possibility that party officials and members of its national executive committee could become liable is being taken seriously by union leaders, and has been underlined by the decision of equity fund chairman David Pitt-Watson not to accept the post as Labour’s general secretary.

Though he was Brown’s candidate for the post, he declined the offer after receiving independent legal advice that he would be personally liable for repaying the loans and could be bankrupted if Labour’s finances collapsed…

Earlier this month the GMB union’s executive decided to indemnify its two members on the NEC – Debbie Coulter, the union’s deputy general secretary and a former Labour party conference chairwoman, and Mary Turner, GMB’s president – to protect their homes and savings. A GMB spokesman told the Guardian: “They told the executive they would not continue to sit on the NEC unless they were indemnified. It’s too much a risk for them.”

As leader of the party and a member of the NEC, Brown is also potentially vulnerable. Other prominent members of the committee are Harriet Harman, the deputy leader; her husband, Jack Dromey, the party treasurer; Pat McFadden, minister of state at the department for business; Angela Eagle, exchequer secretary at the Treasury; Dawn Primarolo, public health minister; and former ministers Keith Vaz and Janet Anderson.

Anderson said last night: “I am very concerned and we should look into the situation immediately. If this is the case, I can’t see how anyone, unless they are very wealthy or are indemnified, like in the case of the GMB, can serve on the NEC. I can’t see who would want to be general secretary following this advice.”

The party’s financial plight can be shown by the current negotiations taking place with banks and donors.

The Co-operative bank, whose £2.61m loan is due to be repaid on June 30, has told the party it wants its money back, even though it is getting 7% interest. The bank has asked the unions to offer loans to Labour so the party can pay its debt, but some are refusing to do this. Paul Kenny, the GMB’s general secretary, has told the Co-operative bank it will refuse to help unless the bank withdraws its de-recognition of the union, which represents staff at Co-operative Funeral Services.

Three other loans are due to be repaid on June 30 and July 1. They are a £1.54m loan from Unity Trust bank, also at 7%; a £1m loan at 6.75% from Nigel Morris, founder of the Capital One financial group, and £2.3m from Sir David Garrard, a property developer. He had already extended the loan by 15 months from April 2007…

The party’s financial crisis could be compounded this autumn. Three of the biggest unions, Unison, the Communications Workers Union and the GMB have tabled motions at their annual conferences next month calling for members to disaffiliate from Labour. If this goes ahead, Labour would lose £4m of its £19m a year in donations.