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The troubled Co-Operative Bank are back in the headlines today. The bank’s creditors have rejected a proposed deal which would have seen the Co-Op Group dodge the normal responsibility of shareholders to cover the cost of failure.

It’s a sad story of commercial disaster, but there is a political angle, too.

As we reported back in July, the Co-Op is an essential crutch for the Labour Party’s dire finances.

The Co-Op Group funds Labour’s sister group, the Co-Operative Party, whose MPs include Ed Balls.

The Shadow Chancellor’s office received £50,000 from Co-Op Group last year, and Balls has boasted about his role in facilitating the disastrous merger with Britannia Building Society which directly plunged the bank into today’s crisis.

The Co-Operative Bank in particular has long been a source of cheap loans for Labour.

A flick through the Electoral Commission’s records reveals outstanding loans from the bank to the central party and its branches totalling £1,621,289, some at an interest rate as low as 2 per cent above base rate.

Those terms are generous – as apparently is the approach to repayment.

For example, £75,000 was loaned to Islington South and Finsbury Constituency Labour Party on 3rd June 1992. The CLP was meant to pay this back in June 2012, but it’s still listed as “outstanding” by the Electoral Commission. Many a small business would give their eye teeth for low interest rates and a bank manager who was so relaxed about getting the payments in on time.

The relationship goes even deeper. Labour’s website hawks the official Labour Party Standard credit card, “provided by our friends The Co-operative Bank”. The bank donates £15 to Party coffers for every Labour member who signs up for the card, and more money as the card is used – so far the deal has apparently raised £2 million.

Despite the Opposition’s rhetoric about lenders who encourage irresponsible borrowing, their credit card is only available to those who already have a credit card from another lender.

Altogether the bank has loaned £34 million to Labour over the last 20 years and, according to The Times, Ed Miliband’s party enjoys a £3.9 million overdraft on its account.

With union donations set to decline as they start to acknowledge that most of their members aren’t Labour supporters, the Co-Op Bank’s financial assistance will become even more important to Labour’s balance sheet.

But now, as Robert Peston reports the bank is set to be taken over by creditors who believe it should be run on a sound commercial footing, meaning there is a very real possibility that it will decide to stop propping up Labour – Britain’s leading advocates of running up debts you can never afford to pay back.

For the health of Co-Op Bank’s balance sheet that would probably be a good thing. For Labour’s mismanaged finances, it would be another nail in the coffin.

76 comments for: Co-Op Bank, the generous lender which props up the Labour Party, goes into meltdown

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