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Overall Financial Position 2021

Income and Expenditure

In 2019, the Labour Party had income of £57.3m and spend of £57.3m, the highest income and spend in the past 5 years- possibly ever. In 2020, income was £41.6m and expenditure £42.5m, both at the lowest level since 2014. The Party made a loss of £1m, the worst financial position in I&E terms for more than 10 years.

In 2021, the financial position worsened further, with the Party making a loss of £5.2m.

Balance Sheet

Overall net assets in 2019 were £13.5m. In 2020, net assets were £11.8m, the lowest level since 2016. In 2021, net assets reduced further to £9.3m

Reserves in 2021 were £13.6m, an improvement compared with 2020 (at £10.6m, the lowest level since 2014). The improvement in 2021 was due entirely to benefits from the pension fund.

By all measures, excepting the pension fund contribution, the financial position has deteriorated further and materially in the past year.

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Treasurer’s Report

This section reports that:

“In presenting the financial statements for the year ended 31st December 2021 we are looking back at a difficult and demanding year”...

“Despite many positives – including membership income comparable with 2017 and 2018, a huge amount in a nonelection year – Party finances do remain challenging with pressure on income coinciding with increasing costs. This has led to difficult discussions and decisions, and we would like to thank everyone for their commitment and dedication during this process.”...

“The one-off cost of the voluntary severance scheme contributed to the deficit result which required the allocation of cash reserves to fund”

Finally, moving into 2022 we continue to face financial pressures and the need to act with prudence, managing finances in accordance with the NEC’s Finance Strategy

The NEC Finance Strategy has served us very well, ensuring that throughout the financial cycle we maximise income, scrutinise expenditure and allocate resources in line with our key priorities”

This analysis is not borne out by the historic balance sheet, which shows a steady improvement in Net Assets from 2010 to 2017 and a levelling off after that until the drop in 2020 and 2021 (next slide). I think it unlikely that the NEC finance strategy would intend this (next slide)

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Net Assets 2011 to 2021

Overall net assets (the net worth of the organisation) in 2019 were £13.5m. In 2020, net assets were £11.8m, In 2021, net assets reduced further to £9.3m, the lowest value since 2015

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Income was up on 2020, mainly because of increases to donations, but there was a material reduction in membership income (next slide)

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Analysis of Income: Membership Income

Donation income fluctuates with the electoral cycle, but it is clear that membership income, the other most variable component has had a material impact on the health of the Party’s finances, and is the chief driver of its financial recovery (until 2020), with membership income increasing materially from 2015 onwards. However, it began to fall in 2021. Because of the lag effect (when members leave), this is likely to fall further in 2022.

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In 2021, running costs were at their highest level ever, at £40.7m

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Running Costs (Note 8) and Staff-related Costs (Note 11)

Running Costs increased by £5.2m, including an increase in staff-related costs of £2.5m. This was despite the average number of employees being down by 10% (40 employees). Senior management costs increased by £347K. This requires explanation

There is a material increase in “Political Activities and publishing” to £6m (compared with £58K in 2019). This requires explanation

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Income Compared with Expenditure 2010-2021

In every year until 2020, income has always exceeded expenditure. In 2021, there was a deficit on I&E of £5.2m

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The chart on the right shows improvements in the financial position for 2021 compared with 2020 (in blue) and worsening (in red)

There was a net contribution of donations compared with campaign costs (the latter mainly for the Scottish elections)

Running costs contribute £5.2m to the worsening of the position.

The loss of membership income contributes £3m to the worsening of the position.

Gross donations improve the position by £4.2m (to be analysed further)

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Questions to the Treasurer: I&E

Please explain political activities and publishing costs £6m (note 8) Treasurer’s report fails to refer to subsequent material reductions in numbers income that were presumably known about at the time that the accounts were published. I believe the drop in membership income to be a material issue that should be referenced in the Annual Report together with mitigations(also see re reserves below]. Please explain the increase in senior management costs in 2020 (increase of £350k) Can you provide assurance that running costs will be reduced materially in 2022?

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Questions to the Treasurer: Balance Sheet

Please can you provide information on the calculation of the Party’s Reserves Policy and the extent to which the Party is compliant with this policy as a 31st December 2021.

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Questions to the Treasurer: Going Concern

Have the officers and Treasurer shared with the auditors the 2022 income projections relating to membership? Also, see reserves policy above.

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Forward Look as at December 2021

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-.