Prescott and Brown kept in dark on loans

The depth of secrecy around Labour's pre-election loan-raising activities emerged last night when party officials confirmed that the deputy prime minister, John Prescott, had not been informed, along with the party treasurer, Jack Dromey, of the raising of nearly £14m in loans.

Mr Prescott would have been expected to have known due to his closeness to the prime minister and his membership of the party's business committee. The chancellor, Gordon Brown, was not told either, but due to his Treasury duties he has always kept himself apart from party fundraising.

The cash for peerages net also widened last night when the Lords Appointments Commission wrote to the leaders of all three main political parties demanding they disclose the identity of nominees for a peerage who may have given their parties secret pre-election loans. Members of the commission are furious they were not told about the loans before they started scrutinising the parties' list of nominees.

The health secretary, Patricia Hewitt, admitted yesterday the secrecy had been unwise, but denied the party had been selling seats in the Lords or acting illegally.

In an effort to draw a line under the issue, the party disclosed for the first time that it had received nearly £14m in commercial loans from individuals ahead of the election.

Labour reiterated that it had not broken the law because the loans had been at a commercial rate, and were therefore not disclosable. It again promised it would reveal the identity of future lenders, but said it would not disclose the identity of previous lenders because the loans, totalling £13.95m, had been given on the basis of confidentiality.

The party spent about £17m on the election campaign, which suggests that a large part of its campaign expenditure was financed from the secret loans.

The Conservatives' accounts show the party had received £9m in loans at commercial rates up to 2004. The Tory leader David Cameron is to announce his own anti-sleaze package on Monday, including a 25% cut in the general election spending limit to £15m and a possible ban on loans to parties, as opposed to donations.

Disclosing the fresh trawl of the parties' nominations for the Lords, a spokeswoman for the Lords Appointments Commission said: "In light of recent events we have written to the leaders of all three political parties asking them whether there is anything else they would like to tell us." The careful wording suggests that some commission members feel the parties may not have lied, but have been insufficiently open about the links between nominations and loans.

It also emerged that Labour's then party general secretary, Matt Carter, and the party's fundraiser, Lord Levy, secured permission in principle from the party chairman, Ian McCartney, during the election last spring to seek commercial loans from individuals for the first time.

He agreed, but aides said he was not told the identity of the lenders, or the scale of borrowing, until recently.

It also emerged that Mr McCartney, as party chairman, signed a certificate to the commission last October confirming that some of the party's nominees for a peerage had given donations to the party. The certificate did not require any political party to state if it had received loans. Mr McCartney signed the certificates in between two heart operations in October, and was not informed by Mr Carter that three of its nominees had given loans worth more than £4m. Neither Mr McCartney nor Mr Carter broke the law because the commission defines donations as funding that is required to be reported to the Electoral Commission under the Political Parties and Referendum Act.

Mr McCartney had not been involved in the preparation of the list of Labour nominees. It is understood that three Labour nominees - Barry Townsley, Sir David Garrard and Chai Patel - have been blocked by the commission. Collectively they lent the party more than £4m, but their names had been blocked even before their loans emerged.

The appointments commission wrote to Labour a week ago in the wake of reports that David Garrard, a property developer, had given the party loans.

Mr McCartney wrote back this week confirming this to be the case, and identifying other Labour nominees that had given loans.

Last night it emerged that the Conservatives had taken two new mortgages at commercial rates in 2004 and 2005 on its empty headquarters at Smith Square in London.

Downing Street revealed that Sir Hayden Phillips, the former permanent secretary at the Department of Constitutional Affairs, would lead talks designed to reach a cross-party consensus on extending state funding. His terms of reference will be published next week.