Labour leader Andrew Little says Matt McCarten's botched student scheme may have left a debt for the party.

Mr Little admitted today that Mr McCarten, one the scheme's organisers, might not have the funding he had claimed and that the party would have to pick up the bills.

"There is a potential for it [debt], yes," Mr Little said. "We take moral responsibility and that means and creditors and suppliers have to be looked after and we will have to do that."

Mr Little dismissed Mr McCarten's plans as "fantasy world stuff" and an "embarrassment".

He said a senior Labour council member, Paul Chalmers, stepped down over the weekend because of his connection to the scheme and there would be an internal investigation.

Internal documents obtained by Newshub show that Mr McCarten claimed to have over $100,000 funding from unions.

The unions named have all denied this, raising questions about where Mr McCarten got his money from.