Secret loans: Blair warned but gave the go ahead
TONY Blair's intimate involvement in sanctioning the loans which have rocked his government is exposed today, after one of his closest confidantes confirmed that he "knew exactly what was going on" and was aware of the risks from the start.
A senior member of the Prime Minister's inner circle gave a remarkable insight into the angst and confusion within the party's fundraising operation as it prepared for the 2005 election.
Blair last week accepted responsibility for the hugely controversial 14m in loans, which did not have to be declared in public. It emerged last week that at least three of the lenders had subsequently been nominated for peerages by the party.
But, in an extraordinary off the record interview with Scotland on Sunday, one of his closest allies revealed that:
The Prime Minister and a select band of confidants involved had to "convince each other" that taking loans from party supporters was the right thing to do;
Blair opted for the loans strategy because the party was "skint" and faced meltdown during the General Election campaign last year;
The clinching argument was the belief that rival parties were using the system to swell their coffers.
This weekend, Blair and the Labour high command have also "gagged" Labour's treasurer to prevent him from exposing the identities of the party's multi-millionaire lenders, because they are protected by commercial "confidentiality clauses".
The Prime Minister entered into the deal with the group of lenders to ensure that their contributions could not be exposed at a later date.
However, it emerged last week that three Labour lenders - Sir David Garrard, Chai Patel and Barry Townsley - were on the list of nominations for elevation to the Lords signed by Party chairman Ian McCartney in October.
The source, a senior Labour figure who was close to the hectic planning that produced the loans strategy last night came out fighting, claiming the party's rivals were already exploiting the system.
But he suggested that there was some reluctance within Blair's inner circle over entering into the arrangements. He recalled that, although the move was not illegal, they had needed to "convince each other" to ditch a veto that had been in place under previous Labour regimes.
"Why did the party do it? Because the party was skint," he said. "We weren't going to get beaten up [in the election] if the others were doing it.
"We didn't exactly invent the wheel, it was there. The wheel was there.
"Blair knew exactly what was going on. As far as he was concerned, it was absolutely legal. It wasn't a matter of convincing him because it was absolutely legal. It was a matter of everyone convincing each other."
Labour Party Treasurer Jack Dromey, who is conducting an investigation into the so-called loans-for-peerages affair, has been given a secret list of all the lenders.
But he has been warned that he cannot go public with their names in a report on the embarrassing saga, which he plans to deliver to party chiefs on Tuesday, because it could leave Labour officials open to legal action in the future.
Although the Prime Minister has attempted to defuse the furore, it threatened to spiral further out of his control last night, after it was confirmed that the controversial policy was conducted by a tight circle of his aides - to the exclusion of even senior Cabinet ministers including Gordon Brown and John Prescott.
Dromey launched a furious attack on the party hierarchy last week after it emerged that at least three of the lenders had subsequently been nominated for a seat in the House of Lords.
Scotland on Sunday also understands that Sir Jeremy Beecham, the elected chairman of the party's all-powerful National Executive Committee (NEC), who will chair an important meeting of the body in London on Tuesday, was upset that he had not been consulted.
Knowledge of the fundraising strategy was restricted to Blair, Labour's then general secretary, Matt Carter, and the party's main fundraiser, Lord Levy. Party chairman Ian McCartney was let in on the secret when Carter and Levy asked him for permission to seek the huge loans last spring to help bankroll a General Election campaign that cost at least 17m.
In addition to the internal fall-out from the revelations, Labour will come under further pressure to disclose more details of the loan arrangements to the body in charge of sanctioning nominations to the upper chamber.
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 party last night maintained that it had done nothing wrong.
Battered Blair living on borrowed time
THE names were barely readable for Ian McCartney, as he struggled with the important papers handed to him during his recuperation from heart surgery last October. Officially, the Labour Party chairman was on lengthy sick leave following a critical heart bypass operation. But some things simply could not wait.
Chai Patel, Barry Townsley, Sir David Garrard and at least one other candidate had been presented to him for elevation to the House of Lords, all with the blessing of Tony Blair. None of the names will have stood out as particularly surprising - or familiar - to McCartney as he discharged his duty by signing the papers.
It was not until last week that these apparently innocuous names developed an explosive significance for McCartney and the entire Labour movement. For the men on the list for ennoblement were not long-serving party stalwarts, nor tireless philanthropists. They were, rather, tycoons who had handed millions of pounds to Labour in the run-up to last year's General Election.
Until a furious Patel broke his silence last week, nobody other than the wealthy benefactors and a tight circle around Blair himself knew anything about the cash, which had been delivered via a complex loan strategy designed to ensure the party could fund its successful bid for a third term in office.
Patel wrote to the House of Lords Appointments Commission to ask if his nomination for a peerage had been blocked, though he denies that his nomination was in exchange for his reported 1.5m loan to Labour.
"If they had said: 'You will get this by signing this,' I would have walked out of the room," insisted Patel.
"I am very sad that whatever happens from here I am linked to an event which has got nothing to do with the things I believe in, but has been reduced to a bazaar where people are saying: 'What is the price of the peerage?'"
New Labour has long been pilloried as having a love affair with lucre, but what made this row stand out from previous scandals was the implication that this time the money was loaned rather than donated so that the transaction could be kept secret.
As revelations of the loans seeped out, one who shared this view was none other than Jack Dromey, the Labour Party treasurer, who had no idea of the apparent link between loans and nominations to the Lords.
While Downing Street was finally waking up to the implications of a policy agreed a year before, a furious Dromey ploughed through last Sunday's newspaper revelations about the loans with increasing alarm. Across the room, his wife, the Constitutional Affairs Minister Harriet Harman, was also weighing up the consequences.
Dromey, deputy general secretary of the Transport and General Workers' Union, decided that Labour must investigate itself to prevent the matter spiralling out of its control. He contacted Downing Street on Monday to demand full details of the loans, and his increasingly irate public interventions would propel the affair into a full-blown crisis.
"This was all about Jack's ego," one furious fellow party apparatchik complained. "He didn't like being left out. He had his position and he thought it gave him power, when really it is a purely honorific title."
Honorific or not, the party treasurer is an elected official and he jointly signs the annual report on its finances. But Dromey was denied access to information on a funding stream that had brought almost 14m into Labour coffers. Unfortunately for an increasingly evasive party establishment, Dromey, a veteran of the Grunwick strike and pickets of the 1970s, is not one to give up.
Significantly, the usual rebel MPs who can always be relied upon to oppose Blair were not the only ones to echo his complaints. On Wednesday, as concerns over the policy began to accelerate, the Prime Minister was waylaid by Warrington North MP Helen Jones as he rushed out of Prime Minister's Question Time and berated, in public, over his behaviour. When he arrived at the Labour MPs' ruling parliamentary committee, one member, his former minister Angela Eagle, picked up the theme.
"She really had a go," another member of the committee told Scotland on Sunday. "When she mentioned the issue of the loans, the response was like when your aged aunt farts at the dinner table. Pure embarrassment. But his answers were not wholly convincing."
By the time Blair emerged from the meeting, his advisers were beginning to accept that he could not simply ride out this storm. After a last-ditch series of meetings with Dromey on Wednesday failed to allay his concerns, it was decided that the Prime Minister would have to demonstrate that he was taking action. His monthly press conference the following day was identified as the ideal opportunity to begin the fightback.
The tactic was not universally welcomed. Dromey sensed a stitch-up and, according to one colleague, "retreated with Harriet to discuss what to do".
"He seriously considered resigning his position with the party," the source added, "but he decided to fight on in pretty dramatic fashion."
Less than an hour after Blair had survived the landmark vote on his Education Bill on Wednesday, relieved ministerial advisers were winding down in the bars in and around Westminster when they received texts telling them to turn on TVs, wherever they were.
"They were all about Jack's interviews. It was incredible," said one aide. In an attempt to get his retaliation in first, Dromey toured television studios to announce his own inquiry into the "improper" interpretation of Labour's own sleaze-busting party funding rules.
"Even Enron, I think, would be amazed at hearing the sort of accounting practices that seem to be going on in the Labour Party," said Dromey. In a neat move that signified the gravity of what he was entering into, Harman immediately resigned her responsibility for electoral reform.
The loophole in the Political Parties and Referendum Act, which requires parties to declare donations but enables them to "hide" loans, has been known for some time. Indeed, it is believed that the Tories have used the legislation to conceal details of up to 20m-worth of loans. But previous Labour general-secretaries, particularly David (now Lord) Triesman, forbade their party from following suit.
In the run-up to last year's election, however, his successor, Matt Carter, was faced with a campaign bill estimated at 20m, while donations were at an alarmingly slow rate.
Party insiders believe that Carter appealed to the party's legendary fundraiser, Lord Levy, who helped devise the new loans-for-Labour strategy. Whether that, in turn, developed into loans-for-peerages remains a matter of debate and Dromey's investigation.
Patel was approached after the election, in July, as the party struggled with a soaring overdraft, a slump in membership and gathering concerns among its traditional bankers, the Co-op and Unity Trust banks. He was schmoozed at dinner parties at Levy's north London home where, amid the splendour of marble and a swimming-pool, Blair himself could be relied upon to make an appearance. At the end of it, he agreed a loan at a "commercial rate of interest" - which meant it did not have to be disclosed. Three months later, he was on the fast-track to the House of Lords.
"This kind of behind-the-scenes loan arrangement was invented by the Conservatives to get around the law," complained Eagle, who is also a member of the party's ruling National Executive Committee (NEC). "It's therefore a great disappointment to me to come across the possibility that someone in the Labour Party may have been doing the same thing."
Other MPs joined in: Gordon Prentice bemoaned the "swirling allegations" and David Winnick called for current nominations for peerages to be suspended while the entire process was "cleaned up".
While Tory backbenchers made hay with the row, David Cameron was unable to put the government to the sword because of his party's own form on the matter. But this offered only temporary relief for the increasingly beleaguered Prime Minister in the wake of attacks from within his own party, and especially those who hope to hasten Gordon Brown's takeover at the top.
An august Blair launched a revised counter-attack at his press conference, at noon on Thursday, in which he signalled an acceptance that he had to give ground. In a nifty twist, he stressed his own discontent at the system of party funding, and he then bestowed upon the Cabinet Secretary, rather than himself, the right to recommend honours.
It was a traditionally polished performance, but Scotland on Sunday has been told that the sleaze-busting blueprint was "pinched" wholesale from a masterplan drawn up by the Brown camp in preparation for their man's attempts to "clean out the stables" if he succeeds Blair.
The Prime Minister's public appearance came immediately after a Cabinet meeting at which his own deputy revealed his anger at the status quo. John Prescott reportedly "went bananas" as he sat at the Cabinet table - but the object of his rage was not the Prime Minister. "He was livid with Dromey for going public," the source added. "In doing so he did, however, disclose that he had known nothing about it. He said: 'I didn't know the facts; nobody knew the facts.'"
Prescott was not alone. Brown's allies maintain that the Chancellor was similarly in the dark, which only adds another troubling element to this most mysterious of Labour's dalliances with sleaze and cronyism. In his day-job, Brown has maintained a rigid control over the nation's finances - a budget of around 500bn - yet Blair and his closest aides kept him out of their big secret on party funding.
While Brown's people appear not to have orchestrated the row that engulfed Blair this week, they have not been slow to exploit his latest weakness - and it has been left to Downing Street to sort the mess out.
Immediately after Blair's performance on Thursday, Dromey was summoned for further negotiations which, according to the Prime Minister's aides, produced a "truce". Unfortunately, this does not appear to be the view of Dromey, who hopes to produce a report to the NEC on Tuesday.
Scotland on Sunday understands that the treasurer has been furnished with a list of all those who have loaned money to the party, and how much of the 14m they have contributed.
However, he has also been warned that he cannot reveal any of the names, because they signed confidentiality clauses with Labour before releasing the money - and the party could face legal action if these are broken.
"Jack hopes to disclose their names as part of his investigation," a party insider confirmed. "He's trying to find a way of getting them into his report on Tuesday, but the party has made it quite clear that there could be legal consequences if any of the names came out."
A legal battle with those he has worked hard to court in the past? The prospect does not bear thinking about for Blair. As he faces renewed protests over the Iraq war - which will have lasted for three years tomorrow, together with the prospect of further battles from within his own party over education and other controversial public sector reforms, the future must look increasingly grim to a Prime Minister with retirement on his mind.
If there is one minor positive Downing Street has salvaged from the loans-for-peerages scandal, it is the hope that it will bring state funding closer. It is an option that is said to appeal to Blair, and one aide explained last night: "All democracies need strong parties, and these have to be paid for."
But, whether or not Blair is truly happy with the notion that taxpayers should fork out yet more money for their politicians, it is hardly the epitaph he would want after almost a decade in charge of the country. Nor would be want to be remembered for the claim that he sanctioned secret loans to keep his party afloat and then agreed that some of the men who provided them should be elevated to the Lords.
The question for Blair, as he peruses the latest grim details of the latest sordid little scandal to afflict his increasingly fragile premiership, is this: are things going to get much better any time soon; and, if they are not, is it time to give up on his hope for a better legacy and get out while it is still his decision to go?
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