Ed Miliband Facing Funding Meltdown After GMB Union Pulls Plug on Labour

Ed Miliband today paid a very high price for his decision to review Labour's historic link with the trade union movement - specifically, more than £1m in hard cash plus a severe dent to his leadership authority.

The giant GMB union's decision to slash its annual donations to Labour from £1.2m to £150,000 has led to the predictable cries that it could mark be the beginning of the end of the party, particularly if others follows suit.

It won't.

What it might very well do, however, is massively weaken the party's ability to fight the next general election on the same financial footing as the Tory party and it will re-open the internal party wrangling over Miliband's leadership, something he believed he had put behind him after his Commons victory over Syria less than a week ago.

It was, after all, Miliband's controversial decision to launch a review in response to claims of a union fix in a candidate selection procedure in the local Falkirk party. It caused a major row with union leaders led by the party's biggest donors, Unite, and spooked many party members who believe that without the unions Labour is nothing.

So today's news from the GMB will also raise the question that, if Labour does indeed sever its historic union link, either by design or as a consequence of Miliband's actions, what exactly is it then for? And a period of soul-searching and re-defining itself is precisely what Labour does not need at the moment, when many in the party believe its primary task should be to get on with mapping out a strong, coherent election manifesto.

That partly explains why Labour bosses have been so keen to play down the whole affair, declaring most of its funding now comes from individual donors rather than affiliated unions.

Figures obtained from Labour bear out this statement. In the year to June, 29% of its almost £17m income came from membership fees with 25% coming from the unions. But, while that means party managers can accurately state they are not as reliant on the unions as many believe, the GMB decision still leaves a pretty big hole in the finances. And overall, the party still has debts of close to £9m.

And there is absolutely no chance that party fundraisers will be able to make up the donations from the 380,000 individuals nominally represented by the GMB cut, simply by asking them to chip in (nominally, because it is the union's estimate of how many of their members would not pay the political levy if given the choice). That is what Miliband seems to be suggesting as one way to make up the funding shortfall, although senior figures such as former party boss Tom Watson believe it would be a mistake.

Watson and others also fear there is an argument here over what might be called the soul of the Labour party. He wrote on his blog: "Like many members of the Labour Party I've always taken comfort in the knowledge that I'm part of a movement, not just a political party.

"If this is the beginning of the end of that historic link, it is a very serious development that threatens a pillar of our democracy that has endured for over one hundred years. Some will scoff but they are fools to do so. That party card stands for something more than confirmation that an annual direct debit has been processed."

Former leader Tony Blair always wanted a looser relationship with the unions and alternative forms of funding.

But that led him to the big fundraisers like Lord Levy and donors like Formula One boss Bernie Ecclestone, a new source of funds which brought its own problems. Ultimately it was this "big donor" approach to fundraising that saw the police questioning the then-prime minister in 10 Downing Street over allegedly selling peerages for donations. Miliband will want to avoid that approach.

So for the moment, Miliband will attempt to play this setback down. But a crunch point will come next week when he makes a keynote speech at the annual Trades Union Congress gathering in Bournemouth. His approach to that address, and the reaction he receives to it, may well be the opening shots in a battle that may see a fundamental shift in the relationship between the unions and the party they helped create and have always sustained.