Loans-for-lordships scandal deepens as police investigate

Labour party attempts to draw a line under the loans-for-lordships affair were foundering last night after Scotland Yard announced that it was investigating allegations that the party had broken the law by selling honours.

The Metropolitan police said its commissioner Sir Ian Blair had received three complaints about the Labour party in the wake of the revelation that Labour had accepted loans from supporters who were later nominated for peerages by the prime minister.

The complaints, which are being investigated by the specialist crime directorate, were brought under the Honours (Prevention of Abuses) Act 1925, passed after the sale of honours by Liberal prime minister David Lloyd George.

Under the little-used act, anyone found guilty of accepting "any gift, money or valuable consideration as an inducement or reward for procuring or assisting or endeavouring to procure the grant of a dignity or title of honour" could face imprisonment for up to two years or an unlimited fine.

The Scottish Nationalist MP Angus MacNeil, one of those who protested to Sir Ian, said: "We are fighting elections against people who are potentially getting dirty money. It's got serious democratic implications for us."

No Labour donor or lender has admitted being offered honours for money and the chance of any prosecution remains slim. But it represents another problem for the Labour high command after it had negotiated a unanimous statement by its national executive committee to heal some of the wounds created by the affair.

In the statement issued during a five-hour meeting at Westminster, the NEC attached no blame to Tony Blair or his fundraiser, Lord Levy, but said it would "resume its rightful responsibility" for overseeing donations and loans, and would conduct an internal review which would establish "lessons to be learned for the future".

The NEC will bring recommendations to Labour's annual conference in the autumn and feed into a broader inquiry established by the prime minister into party funding.

On Monday the party revealed that it had received £13.95m in loans from 12 donors, including four who were later nominated for Labour peerages. Sir Gulam Noon, founder of one of Britain's biggest Indian food companies, yesterday became the last of the four to withdraw from the nomination process in the wake of the furore.

Sir Jeremy Beecham, chairman of the NEC, said the 12 backers who gave loans to the Labour party to finance its general election campaign had agreed individual repayment terms on commercial rates, but some of the loans could be turned into donations in the future. "It [a loan] may be repaid, may be rescheduled or it may become a donation," he said.

Chai Patel, one of those who loaned money, said yesterday the option remained open to turn his loan into a donation later on. Dr Patel told Radio 4's Today programme that Lord Levy had met him after the general election to ask for help. "At that meeting I agreed to a donation - £1.5m. A few days later he phoned to tell me I could donate the money as a loan rather than as a donation. I was told that would be the preferred way to do it."

Under current rules, which all the parties have accepted need to be changed, the details of the loans do not have to be disclosed because they were given on a commercial basis.

Sir Jeremy acknowledged that the party still did not know why Lord Levy, the prime minister's tennis partner, had asked Dr Patel to turn his original offer of a donation into a loan. But Sir Jeremy said the peer could continue to raise money. "He's not a mafia strongarm man. If he's asked to raise money for the Labour party he'll do it in his own inimitable way."

Jack Dromey, the party treasurer, who protested last week that he had been kept in the dark about loans arranged by Lord Levy, confined his remarks yesterday to one sentence: "I warmly welcome and strongly support what's been agreed and I am going to make no further comment."

NEC insiders insisted the meeting had been constructive and good-tempered, with leftwinger Dennis Skinner issuing a passionate call for the party to move on.

But Charles Clarke, the home secretary, was less forgiving. At a lunch for journalists, Mr Clarke said Mr Dromey had been "completely wrong" to suggest the loans were arranged in secret.

"For me that raises more serious questions about Jack's capacity to be treasurer without understanding what was going on with the financing of the party. Any competent treasurer looks at the finances of the organisation."

What the law says
Under the Honours (Prevention of Abuses) Act 1925 section one, a person who accepts, obtains, gives or offers gifts or other valuable consideration, or who agrees to do so, as an inducement or reward for procuring, assisting or endeavouring to procure the grant of a dignity or title of honour to any person, is liable on conviction on indictment to imprisonment for a term not exceeding two years, and/or a fine, or on summary conviction to three months' imprisonment and/or a fine not exceeding £5,000.