The Labour Party has reported a turnaround in its financial fortunes.

Tony Blair's party recorded an operating surplus of £2,637,000 last year, compared to a deficit of £924,000 in 2002, according to accounts published by the Electoral Commission on Monday.

Labour's income was boosted by an increase in donations from £4.6 million to £9.1 million, while running costs were reduced by the decision to buy its own headquarters building after the 2001 general election.

The party's decision to snub Blackpool as an annual conference venue in favour of the south coast was also justified by a £700,000 rise in income from the event of over £700,000 when it switched from the North West to Bournemouth.

But general secretary Matt Carter still said in the report that Labour will need more money to fight the general election, expected to be called next year.

"We still need to raise significant additional funds to fight the next general election," he wrote.

Opposition parties

In contrast Conservative cashflow suffered in 2003, which the party put down to "internal personnel changes" as a result of the second change in leadership in a little over two years.

Central Office ran up a deficit of £2.4 million last year, nearly five times the £500,000 loss accrued in the final three quarters of 2002.

However Tory treasurer Lord Hesketh insisted that changes had to be made in order to put the party on a sure footing ahead of the election.

"In line with our continuing strict financial disciplines and break even budget for the 12 months to December 2004, we believe that Conservative Central Office is in a fitter state than ever before at this stage going towards the next general election," he said.

Co-chairman Lord Saatchi said the period since Michael Howard took over in November last year had seen a reversal in fortunes in both membership and donations.

Lib Dem cash

The Liberal Democrats reported a fall in their surplus from £307,523 to £91,131 in the same period, as a result of outgoings rising faster than revenue.

Donations went up by around £400,000, but campaign costs rose by a similar amount while expenditure on staff also increased.

Party treasurer David Griffiths said the Lib Dems were still a long way behind their two main rivals in terms of access to cash.

"Although it is gratifying to see both income and expenditure increase, the challenge remains to raise even more funds to enable the party to build upon its recent electoral successes and compete on a more equal financial footing with the other main parties," he said.