Unite union ‘broke law’ in hotel project scandal that left £66m hole in accounts

Auditors uncovered a catalogue of financial failures at Unite the Union, warning that it broke the law because of the lack of effective controls. There has been a write-down of £66m in the union’s 2021 accounts over the construction of a hotel development in Birmingham.

The union is among Labour’s largest donors, handing more than £6.5m to the party since 2020. Ministers now face calls for an official investigation into the union, which has not published accounts since 2020.

The certification officer, the independent officeholder who regulates trade unions, said on Friday he was reviewing auditor BDO’s findings. An interim report published by Unite last month alleged the private contractor building a hotel and conference centre for the union had paid for football tickets and arranged private jet flights for former general secretary Len McCluskey. He has criticised the report as “inaccurate, selective and highly misleading”.

While McCluskey pushed through the hotel project, which was completed in 2020, BDO has uncovered systemic failures inside the union that allowed the costs of the financially disastrous construction to soar unchecked. The project is being investigated by the Serious Fraud Office.

Auditors found a “culture throughout the organisation that did not challenge the appropriateness of transactions and failed to ensure appropriate financial reporting tools were available to support effective governance of the union”.

There were no proper procedures in the union for procuring contracts, no system for purchasing orders – thus increasing the risk of error and fraud – and no register for disclosing conflicts of interests.

BDO concluded in a report to the union’s executive council that Unite failed to comply with legal requirements to maintain effective control of its accounting records and “a breach of the law has occurred”.

It said there were a number of occasions when staff, including former senior management, received significant financial support that adversely affected the union, that did not follow normal procedures or that might be viewed as inappropriate by union members.

In 2016, it was reported that Unite had contributed more than £400,000 towards a London flat for McCluskey, which he later repaid. The loan was not authorised in advance by the executive committee, according to the union’s internal report.

The Labour peer John Mann said: “We have seen a once great union collapse into chaos. The union is in danger over the long term because it has created a big financial hole and its credibility with employers has gone down.” He added that it needed to focus on rebuilding its operations in the workplace.

The BDO report comes as Unite faces battles on several fronts, from costly disputes to clashes with factions viewed as supporters of McCluskey. It is embroiled in a protracted dispute with Birmingham council over refuse collection, with members taking industrial action since January. While residents have endured mounds of rubbish in the street, Sharon Graham, who replaced McCluskey as general secretary, has accused the deputy prime minister, Angela Rayner, of “aiding and abetting the fire and rehire” of bin workers.

Unite members voted last month to suspend Rayner from the union and to examine its ties to Labour. Party sources have described the criticisms levelled against Rayner by the union as “baseless” and said she had resigned her membership some months ago.

Unite became the biggest union in Britain when it was formed by the merger of the Transport and General Workers’ Union and Amicus in 2007, with about 2 million members. Numbers have since slumped and it now has about 1.2 million members.

During McCluskey’s decade as general secretary, it lost more than 250,000 members and was overtaken by Unison as the UK’s biggest union. Unite membership costs about £18 a month for people in full-time employment, with subscriptions and contributions generating about £170m a year for the union.

Among the accusations aimed at McCluskey was that he was so vested in the Jeremy Corbyn project there was a loss of focus on members on the frontline. McCluskey branded Labour MPs who tried unsuccessfully to oust Corbyn as “spineless bullies”, and the union paid for the legal advice to ensure Corbyn was on the ballot for a second Labour leadership contest in 2016.

McCluskey now claims Corbyn might never had become leader without him at the head of Unite, arguing the union gave the MP the “legitimacy and resources to succeed”.

McCluskey admitted only after he stood down as general secretary in 2021 that he had been in a relationship with Karie Murphy, who had been Corbyn’s chief of staff.

The Labour MP Neil Coyle said that during McCluskey’s leadership, some Unite members complained they were not receiving necessary support in the workplace. He said: “It was obscene that some union members were saying they were not getting the support they needed on the frontline while millions of pounds were being squandered elsewhere.”

Coyle said he welcomed the fact that Graham has ordered a “clean-up” and there needed to be a reform of the certification officer to strengthen the post’s powers.

John Spellar, the Labour peer and former minister, said the officer should require Unite to publish its accounts and investigate the alleged failures in financial controls.

“It seems there was a shocking disregard for proper administrative and accounting practices,” said Lord Spellar. “It was gross mismanagement.”

Unite said Graham had commissioned five independent investigations into allegations of wrongdoing at the union. “A number of senior appointments have already been made, which cover the most serious matters raised by BDO,” the union said in a statement.

“Unite is working through the recommendations set out by the auditors. The current general secretary is committed to getting to the truth and cleaning up Unite. As a result, the union will be open and transparent with any agency who can help hold those responsible to account.” The union said it expected the 2021 accounts to be submitted “very soon”.

A certification officer spokesperson said the officer was examining the findings of the auditor’s report, which included a breach of section 28 of the Trade Union and Labour Relations (Consolidation) Act 1992, requiring a union to establish a satisfactory system of control of its accounting records and cash holdings.

The spokesperson said: “We are considering whether any use of the certification officer’s statutory powers is necessary. We will take into account the need to avoid overlap with any ongoing investigations by other authorities.

“We continue to work with Unite to ensure that full annual returns are submitted at the earliest opportunity and which will be published in full on our website in line with standard practice.”

A legal representative for McCluskey said the money paid by the union for a London flat was a “loan” made in accordance with the union’s “well-established home equity scheme”, in recognition of the fact that Unite officers would work in the union’s offices in the capital.

The scheme did not require approval from the executive council on a case-by-case basis for McCluskey or any other official, said the representative.

The Labour party has been contacted for comment.

Photographs by British News and Media/Alamy/Peter Macdiarmid/Getty