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Last Updated: Friday, 17 March 2006, 13:26 GMT
Labour was secretly loaned 14m
Tony Blair
Tony Blair has pledged changes to the system
Labour was secretly loaned 13,950,000 by wealthy individuals ahead of last year's election, it has confirmed.

The figure is more than three times the amount previously thought, and most of it was used in Labour's 18m campaign.

Labour says it will name lenders in future amid claims - vehemently denied by ministers - those lending money were being rewarded with peerages.

Downing Street has appointed an ex-top civil servant to lead cross-party talks on the future of party funding.

Sir Hayden Phillips - described by No 10 as an "independent figure" - was permanent secretary in the Department for Culture, Media and Sport and the Lord Chancellor's department.

His terms of reference will be announced shortly but are likely to include possible state funding of political parties - an idea backed by Cabinet ministers including Health Secretary Patricia Hewitt.

Tory loans

Tony Blair has always ruled out such a move but his official spokesman said he wanted to seek a "consensus" with other parties on the issue.

The crucial difference is that we haven't been trying to do anything in secret and our party treasurer knows exactly what is going on
Conservative spokesman

The Conservatives have also pledged to name people who lend the party money in future and they have revealed that they already publish the amount they receive in loans in their annual accounts.

The latest figure available is for 2004, when the party was lent 9,021,000 at commercial rates, plus 4,316,000 interest free from constituency associations. The figures for 2005 will be published in July.

A Conservative spokesman said: "The crucial difference is that we haven't been trying to do anything in secret and our party treasurer knows exactly what is going on."

Anonymous

The figures released by Labour for 2005 mean the bulk of the 17.94m the party spent on its general election campaign was paid for by loans from individuals on the understanding their names would not be made public.

Ministers have been swift to point out there is nothing illegal about this - under current rules, political parties have to declare donations of more than 5,000 but loans can remain anonymous.

A Labour spokesman said the loans were taken out at commercial rates and would be repaid. Press reports suggest the party was forced to turn to individual lenders after its bankers refused to enlarge its overdraft.

On Thursday Tony Blair pledged to review the party funding system after it emerged even Labour's treasurer Jack Dromey had not been told about the loans - something the prime minister admitted was wrong.

He also admitted he had not told the Lords appointment committee three of his candidates for working peerages had given the party loans.

Working peers

He pledged changes to party funding, ministers' private interests and the honours system.

Mr Blair also said that he wanted to renounce the right personally to nominate people for honours.

Downing Street later said this was a role he rarely used, while Mr Blair himself made clear that the present system of party leaders - including him - nominating working peers would remain, pending the final stage of House of Lords reform.

Mr Blair would also retain the right to nominate a small number of peers for distinguished public service, such as the outgoing NHS chief executive Sir Nigel Crisp, Downing Street said.

Number 10 also said it is seeking a second independent figure, "who has the confidence of ministers and the wider public," for the role of advising ministers on their financial interests.

Such a move was first suggested in the wake of the controversy surrounding the financial affairs of Tessa Jowell and her husband David Mills but was rejected by Number 10 at that stage.

'Too obsessed'

Meanwhile, Mr Dromey is carrying out an internal inquiry into the affair, which is due to report next week.

BBC2 Newsnight political editor Ms Kearney said there had been "deep-seated suspicion of these loans in the Labour Party for some time" and the practice had been "banned" under previous general secretaries David Triesman and Margaret McDonagh.

There were "various theories" as to why the ban had been lifted ahead of the last election, she added, including the fact that the party had been short of cash.

Former Labour deputy leader Lord Hattersley has said that he is "horrified" by the sums, which show the party is "too obsessed with the world of money".




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