Tories' £16m loan crisis

The Conservative Party owes at least £16million and faces a financial crisis this year, the Evening Standard has learned

Insiders have revealed that the party's election costs were mainly met by taking out a series of massive loans from wealthy supporters.

At least £12 million is owed to individual donors while another £4 million was borrowed from constituency parties. "The party is looking at a debt of some £16 million-to £20 million, which will have to be repaid before a war chest can be built up for the next election," said a source.

"Nobody likes to talk about it because it is a symptom of the party's difficulties in recent years."

Donations to repay the money dried up when Michael Howard announced his resignation, with donors sitting on their hands to see who the new leader is.

Staff at the Conservatives' campaign headquarters have been warned to expect cutbacks within weeks.

The disclosure emerged as Mr Howard declared formally that he will stay on until the end of the year in what Tories have dubbed "The Long Goodbye".

In an interview with the Daily Telegraph, he said: " I hope we will have a new leader by Christmas." A side-effect of the lengthy "beauty contest" to choose his successor is that donations are unlikely to flow again until next year.

Although elections are the political parties' most important periods for fund-raising, the Conservatives were forced to ask for loans to finance campaigning and running their HQ.

Former treasurer Lord Ashcroft agreed to lend an extra £1 million during the campaign, on top of a previous loan of £1.5 million.

Swedish businessman Johan Eliasch, a deputy treasurer of the party, reportedly lent £2 million through his companies and associates.

The Tory leadership parade was in full steam today in the wake of yesterday's shadow cabinet reshuffle, which gave jobs to all the main contenders.

Also in the Telegraph, shadow home secretary David Davis warned against copying Labour's modernisers.

"At exactly the time when the Blairite model is failing," he writes, "it would be extraordinary for the Tory party to try to imitate it."

David Cameron, the new education spokesman and a leading

moderniser promoted from a backroom job, promised: "We've got a job to do in Parliament to call this government to account, make sure they stick to their promises - and congratulate them when they get it right.

"That's an important job and we have got to start now."

The biggest promotions in the reshuffle were for Mr Cameron, 38, and his 33-year-old ally George Osborne, who leapfrogged rivals to become shadow chancellor.

Mr Howard will tomorrow launch "an honest and open debate" about the future of the party in the wake of its third election defeat.

But the leader made clear that there would be strict limits to prevent the leadership speculation spilling over into backbiting and division.

He today set down new ground rules for the shadow cabinet, including a ban on criticism of colleagues and on developing new policy.

Crucially, he said shadow ministers should not trespass on the portfolios of their colleagues - a move that may prevent anyone other than Mr Osborne from talking about the vexed issue of tax policy.

A weekly forum of MPs, peers, staff and key supporters will be held between now and the summer recess in a bid to kick-start the debate on the future direction of the party.