Cash crisis hits Tory election hopes

Plan to sack up to a quarter of Central Office staff as growing deficit raises fears that banks may not extend credit for campaign

The Conservative Party is considering urgent plans to sack up to a quarter of its headquarters staff to prevent one of its worst mid-term financial crises threatening its capacity to fight the next general election.

Around 40 of the 160 staff at Conservative Central Office are threatened under plans already approved in principle by the party's management board in the expectation that there will be no dramatic turn-round in the remaining two months of the financial year.

The party could face an operating deficit in the financial year 1994/95, only a year after Sir Norman Fowler, the former chairman, was able to record an operating surplus of £2.1m for the first time in several years. A deficit would mean a further increase in the party's £16.5m overdraft.

But even if the party breaks even as a result of donations during the next two months, the cuts look increasingly inevitable because of the £1m-plus annual cost of servicing the overdraft and the fear that banks may not be prepared to extend credit for the general election unless the party manages to make deep cuts in its debt before then.

According to some internal estimates, while income is currently only running at around £10m a year, the party needs some £30m in donations over the next two years to be fully equipped for the general election. And even then it is unsure of being able to find the £11m that it spent on the 1992 general election. Among the possible targets for cutbacks - which would save around £1.5m- are some of the functions of the constituency services section, whose responsibilities include back-up for the Young Conservatives, Conservative Women, the trade union section, the multi-ethnic one nation forum and the running of the party-owned printing works in Reading.

The possibility of "privatising" other functions at Central Office has not been ruled out. The idea of charging MPs and others for research services provided by Central Office has been examined in the past, but would provoke a stiff reaction from the parliamentary party. Another possibility would be ending the £100,000-a-year affiliation to the European Democratic Union and the International Democratic Union, the two main international centre-right bodies to which the party subscribes.

Rumours about cuts have already caused anxiety within Central Office. One insider said: "What is worrying a lot of us is that at this time in the cycle we should be taking people on, not letting them go."

Although party sources insist that income is "stable", cutbacks in large company donations has robbed the party of the means to reduce its overdraft.

One certainty is that any cuts will be in accordance with management criteria laid down by Jeremy Hanley, the party chairman, at the Conservative conference in Bournemouth in October, when he said that he would be "ruthless in cutting out every cost which does not contribute to our political objectives". The party has few alternatives to cutting its staff at Central Office.