Tories urge Blair aide's sacking

The Conservatives are calling on Tony Blair's chief-of-staff to be sacked in the row over Tony Blair's help for a Labour donor's Romanian business deal.

It is "wholly indefensible" for Jonathan Powell to stay as Mr Blair's most senior aide because he must have known Indian tycoon Lakshmi Mittal had given money to Labour, say the Tories.

Downing Street has continued its defence over Mr Blair's letter to Romanian Prime Minister Adrian Nastase supporting the takeover of a nationalised steel company by Mr Mittal's company, LNM.

The prime minister's official spokesman denied claims Downing Street had lied over the controversy and Mr Blair himself told his cabinet on Thursday all the allegations were nonsense.

'We don't lie'

Number 10 is accusing the media of being in a "frenzy" and describes the row as a "great paper-trail on a non story".

Mr Blair's spokesman told reporters: "Say what you like about it, you often do. But we don't lie."

Downing Street stresses Mr Blair signed the letter on the advice of the UK's ambassador to Romania, who has said it was intended to express support for British involvement in what was seen as Romania's privatisation of the decade.

Jonathan Powell is Blair's most senior aide

The ambassador did not know about any donation, says Number 10.

Mr Blair dubbed the affair "Garbagegate" when he clashed with Iain Duncan Smith in the Commons on Wednesday.

The Tory leader asked whether Mr Blair or his chief of staff knew Mr Mittal was a Labour donor when he signed the letter.

An early draft of the letter reportedly indicated Mr Mittal was a "friend" of the prime minister, but that reference was removed by someone in Downing Street before Mr Blair signed it.

Former Labour fundraiser Henry Drucker told BBC Two's Newsnight it would have been part of Mr Powell's job to know Mr Mittal was a big donor.

'Ethically dubious'

Now shadow Cabinet Office Minister Tim Collins says it is "inconceivable" Mr Blair did not know about the donation and Mr Mittal's links to LNM.

Mr Collins said: "The prime minister must remove Jonathan Powell as his chief of staff.

"It was always ethically dubious to have as his gatekeeper in Number 10 someone who had a role in party fundraising. It is now wholly indefensible."

Duncan Smith clashed with Blair in the Commons

The Tories accuse Downing Street of telling untruths in its version of events and they continue to demand an independent inquiry into the affair.

Number 10 says Mr Powell does "an important job extremely well" but added that he was not the only person who saw such letters.

Welsh Nationalist party Plaid Cymru is also tabling parliamentary questions over why Mr Blair was helping a competitor to Corus, formerly British Steel.

In Commons exchanges on Wednesday, Mr Blair said the letter he signed did not mention Mr Mittal, but his company LNM.

But even if he had known the company was owned by a Labour donor, Mr Blair insisted, it would still not have been wrong.

Personal tax

Mr Blair's claim that he was simply "celebrating" the success of a British company has also been criticised because the subsidiary of LNM involved is registered in the Dutch Antilles and employs less than 1% of its workforce in the UK.

The company does, however, have a London headquarters.

Mr Mittal, an Indian citizen who lives in Hampstead, London, and pays personal tax in the UK, gave £125,000 to the Labour Party during the general election campaign last year.

BBC Political Editor Andrew Marr says the long-term significance of the affair could be that Tony Blair warms to the idea of state funding for political parties.

The Institute for Public Policy Research (IPPR), a think tank with close Labour links, is now examining the question, saying the credibility of the whole democratic process is at stake.

Downing Street says Mr Blair continues to believe there is no consensus for state funding but acknowledges there is a debate.

A House of Commons committee announced on Thursday it is to begin an inquiry into state funding of parties.