Former deputy prime minister is campaigning to be elected treasurer of the Labour party, which he says is £20m in debt

John Prescott today warns the Labour party that it is £20m in debt, "on the verge of bankruptcy" and must learn to campaign in smarter and more cost-effective ways if it is ever to restore its battered finances and take on the cash-rich Conservatives again.

Crucial to this reform is the need to boost the role of the party treasurer, "not only to hold the leadership to account in unnecessarily spending money we don't have, but to make sure we have the campaign capacity to deliver", says the newly ennobled Lord Prescott, who is the underdog candidate for the post at the age of 72.

Though implicitly critical of Tony Blair's way of handling Labour's three traditional sources of funds – trade unions, small donations and wealthy supporters such as Lord Sainsbury – which ended in the cash-for-honours investigation, Prescott also takes a sideswipe at Gordon Brown's "election that never was" in October 2007.

Brown's dithering over whether to call a snap election cost the party £1.5m, which could have been spent on the "disastrous" EU and local election campaign in 2008, Prescott writes for theguardian.com.

The result of the contest for the position of party treasurer will be announced with other elections to the ruling national executive – and that for party leader – at Labour's annual conference in Manchester next month. Prescott, deputy prime minister under Blair, finds himself in the unusual position for a veteran trade union politician of being the underdog against Diane Holland, a senior officer in the Unite union who is widely tipped to triumph with the help of the trade union block votes, though she is trailing in constituency party support.

In his article Prescott complains that Labour only had £10m to spend on this year's general election – a third of the Tory budget. "We are only kept alive by the herculean work of party staff and volunteers, trade union contributions, high-value donations and the goodwill of the Co-op bank," he writes. "And under the NEC's deficit reduction plan in 2008, we will clear our debts by 2016, but at the expense of campaigning for next year's Scottish, Welsh and local elections and the 2015 general election."

Matters will get worse as the Tory-Lib Dem coalition "looks to tackle party funding to our disadvantage", he says. The party will thus need to campaign "in a smarter and more cost-effective way".

Prescott's slimmed-down battlebus – a Ford Transit van – travelled 5,000 campaign miles at a cost of £50,000, all of it self-funded. A similar exercise in 1997 cost three times that amount, he says — part of his credentials for getting the job held until recently by Jack Dromey, now an MP.

Prescott says he stood as Labour's deputy leader "because I wanted to make it a campaigning role". He adds: "Now I want to make the role of treasurer truly count." The treasurer, Prescott says, should be "strong enough to stand up to future leaders and make the case for campaigning within our means".