Capita chairman quits after criticism of loan to Labour

The Labour loans controversy claimed its first victim yesterday when Rod Aldridge, the head of Capita, the firm that has made millions of pounds from outsourcing public services, decided to quit rather than face further damaging criticism.

Sources close to Mr Aldridge, who lent Labour £1m at commercial rates after the election, said he was shaken by the degree of criticism in political and media circles about his links with Labour. "This was a straightforward personal decision which he made after looking at the media."

Mr Aldridge is proposing next month to take a high-profile role with Gordon Brown, the chancellor, by launching a national scheme for a million people to volunteer, and through his personal trust he will boost Tony Blair's city academy programme by up to £4m.

Following disclosure of his loan to Labour, Mr Aldridge spent much of Wednesday discussing his options with fellow directors on Capita's board, who include Capital Radio's chairman, Peter Cawdron, the venture capitalist Eric Walters, and a former head of Yahoo!'s British arm, Martina King.

Capita declined to say whether colleagues had encouraged him to resign, though it said there were no calls for change from institutional shareholders in the City. Shares in the company seesawed yesterday, first knocking some £2m off the value of the company and later recovering slightly. A source insisted that Mr Aldridge's loan, made in October, was motivated by lifelong support for the party: "He's the son of a union rep, he had a crap education and he's achieved. He feels it was against the odds and he wants people to have better opportunities, that's what drives the man."

Mr Aldridge left school at 16 with five O-levels and took a job as a postboy at East Sussex county council. His fortunes changed when, in 1987, he led a management buyout of a computer consultancy. The move led to the creation of Capita.

Mr Aldridge said yesterday he was leaving his post as chairman of Capita because of negative publicity surrounding his loan to Labour. In a statement he said: "There have been suggestions that this loan has resulted in the group being awarded government contracts. This is entirely spurious."

Mr Aldridge, who has a shareholding in Capita worth £72m, received more than £530,000 in annual pay. He sold £7.6m of shares in the company last year.

Yesterday, the chancellor defended Mr Aldridge, telling the BBC that he was not aware of his decision to step down, but that it was wrong for individuals who supported political parties financially to be "impugned" for doing so. He accepted that recent events, including the row over culture secretary Tessa Jowell and her husband's business affairs, had shaken public trust and action was needed to reassure voters that politics was conducted "above board".

Mr Brown said: "People should be free to give donations to political parties as well as to charities and other organisations, and their motives for doing so shouldn't be impugned.

"There is a long-term issue about the decline in trust in politics ... and I believe at the heart of this is the relationship between the executive and both the public and the legislature in the House of Commons."

The row over the £13.9m secret donations to Labour showed no sign of waning yesterday. Two parliamentary committees announced details of investigations. Two other people who lent money and were nominated for peerages - Chai Patel, founder of the Priory Clinic, and Sir David Garrard, a property developer - will give evidence to the Commons public administration committee next Tuesday. Lord Levy, Tony Blair's chief fundraiser, has agreed to give evidence in May. The constitutional affairs committee will examine whether the party funding system needs reform.

Top projects

Capita has a turnover of £1.4bn a year. It provides public and private outsourced services - IT, finance, admin, running property, recruiting. Some 53% is public: central govt 17%, local govt 22%, education 14%.

Some big contracts are:

· 2001 Regeneration for Blackburn council; £190m over 15 years

· 2002 London's congestion charge; £280m over five years

· 2002 BBC TV licence enforcement; £500m over 10 years

· 2003 IT for Criminal Records Bureau; £400m over 10 years

· 2003 Running teachers' pensions; £62m over seven years

· 2004 Running miners' compensation; £125m over three years

· 2004 Dept of Work and Pensions records; £70m over seven years

David Hencke and Andrew Clark