Blair crony minister's tax dodge

Labour donor Lord Drayson last night admitted diverting a huge slice of his family’s fortune into three trusts in the Isle of Man, a popular destination for investors seeking to protect their assets from UK taxes.

The hoard, in three separate trusts in the name of Drayson, his wife and father-in-law, included almost half of the 90m-plus the family raked in from the sale of the controversial drug firm Powderject.

Three yeas ago, Scotland on Sunday revealed that the peer made a 50,000 donation to the Labour Party two months after Powderject won a 17m NHS vaccines contract at a price four times that of the previous deal.

His close relationship with the New Labour establishment provoked further uproar when the company won a 32m deal to provide enough smallpox vaccinations to protect the UK population against a germ-warfare attack.

Drayson now says he has moved his funds back on-shore and insists he is complying fully with the ministerial code of conduct.

But the fact that a Labour minister appears to have taken advantage of off-shore account schemes is bound to stoke further controversy over his appointment. Chancellor Gordon Brown has consistently sought to curb the activities of offshore trusts located beyond the full reach of the Treasury in tax havens such as the Isle of Man, the Channel Island and the British Virgin Islands.

But accountants have developed increasingly sophisticated schemes for helping their clients avoid or reduce the burden of duties, including inheritance and capital gains tax.

Although not illegal, the schemes are widely regarded as unethical by critics.

Labour MP Ian Gibson said: "This is a ruse to get around the law of the land. Nobody has any respect for that kind of behaviour. It would be better if he became a minister by the straightforward route - by getting elected."

The Douglas-based company which controlled the three Drayson family trusts points to a catalogue of attractions for investors seeking to move assets to the island, including its "total independence from the UK regarding income taxation".

The disclosure threatens to be another setback for the Prime Minister in his troubled relationship with Drayson, a former Thatcherite tycoon turned New Labour cheerleader.

After the Powderject deal came to light, Blair courted further controversy last year when he handed Drayson a seat in the House of Lords. The "cronyism" row was re-ignited last week when Drayson was promoted to defence minister in Blair’s post-election reshuffle.

Scotland on Sunday has established that Drayson, his wife Elspeth and her father, Brian Bellhouse, benefited from the offshore trusts for at least four years.

Drayson has so far failed to include his large offshore holding in the official register of Lords’ outside interests.

A spokesman for Drayson said last night: "When Lord Drayson was an active businessman, some of his and his family’s financial interests were held in trusts offshore.

"However, since entering public life Lord Drayson took steps to ensure the trusts came onshore and would be taxed accordingly. This move was completed last autumn.

"As a minister he abides by the ministerial code like every other minister."