Blair on the rack over cash-for-peerages puzzle

TONY Blair will return from his Easter break this week to face a police investigation into the most damaging political scandal of his premiership.

Senior government figures are expected to be interviewed by police officers this week over the "cash for honours" crisis and insiders said last night the Prime Minister was being briefed by lawyers who believe he may have to make a statement in the ongoing investigation.

Whitehall sources said they believed it was "inevitable" that Mr Blair would at least make a statement to police. Downing Street sources said the Prime Minister, who has spent the past week working from his country residence at Chequers, would "cooperate with any requests from police" although none had been received to date.

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With the corruption inquiry threatening to derail Mr Blair's premiership, his advisers have also been preparing a major damage limitation exercise this week to try to keep the scandal away from Number 10.

But with key advisers to the Prime Minister being drawn into the affair almost daily, it is becoming increasingly difficult to deflect attention from what has become a potentially catastrophic scandal for Mr Blair.

David Miliband, the Cabinet minister tipped as a potential successor to Mr Blair, was the most high-profile government figure to be embroiled in the "cash for honours" affair this weekend.

It emerged yesterday that he was named by Des Smith - the former government adviser arrested last week by Scotland Yard detectives - in a conversation with an undercover reporter.

Mr Smith reportedly advised that businessmen seeking honours should "go for Miliband" with offers to back city academies.

"I'll introduce him [the businessman] to David Miliband and say, 'Knighthood? This is the man'," said Mr Smith in a meeting with the reporter.

A spokeswoman for Mr Miliband denied any suggestion that he had ever nominated anyone for an honour for backing an academy or any other form of government sponsorship.

She said: "Mr Miliband has made clear that he only met with Mr Smith on a small number of occasions. He did so in his capacity as an education minister and Des Smith in his capacity as a headmaster."

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The linking of Mr Miliband to the scandal yesterday lengthened his odds of becoming Prime Minister.

Bookies who in January had made him 7-1 favourite for succeeding Mr Blair, are now offering odds of 13-1.

It also emerged yesterday that Scotland Yard was extending its inquiry into whether cash was exchanged for government contracts, and had devoted more officers to the case.

Plain-clothes detectives have seized e-mails and documents from the Cabinet Office as part of their investigation.

As part of their inquiry, police have also indicated they could interview Lord Adonis, the junior education minister and former Number 10 adviser who was one of the main cheerleaders of the controversial city academies scheme at the centre of the sleaze row.

Another ally of Mr Blair set to face investigators is Lord Levy, the Prime Minister's chief fundraiser, who wooed wealthy donors at his London home.

Lord Levy is said to be annoyed at being used as the "fall guy" as he had warned the Prime Minister against accepting secret loans from donors.

It was only when Mr Blair warned that the party faced bankruptcy that Lord Levy is said to have agreed to the controversial scheme.

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Matt Carter, the former general secretary of the Labour party and another man credited with devising the loans idea, is also in line for questioning.

Police yesterday refused to confirm who they were interviewing or how many officers they had on the case.

A spokesman for the Metropolitan Police also refused to deny that Mr Blair might be questioned but said the inquiry might be widened to include all corruption allegations, including cash-for-contracts claims.

Meanwhile, a senior official at the centre of the party's fundraising machine claimed Mr Blair was "up to his neck" in a "scam" to reward financial backers with seats in the House of Lords.

Nick Bowes, Labour's former head of high-value fundraising, alleged on a website that Number 10 was "running a party within a party - Blair, Lord Levy, Matt Carter and chairman Ian McCartney were all complicit in the scam, and I knew absolutely nothing about the loans".

Mr Bowes questioned whether the Prime Minister was committed to reforming the House of Lords "as it may just rob him of his one first-class way of rewarding big donors and sponsors of city academies".

The web entries, made last month, also accused Mr Blair of devising his own "lavender list" of honours, a nod to former Labour prime minister Harold Wilson's nominations that led to allegations of corruption.

Mr Blair yesterday faced demands to suspend all nominations to the House of Lords until the cash for peerages allegations had been cleared up.

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Martin Bell, a former MP who ousted the Tory Neil Hamilton on an independent "anti-sleaze" ticket, led demands along with Angus MacNeil, the SNP MP who raised the issue of potential abuses of honours with police.

In a joint letter to the Prime Minister, Mr Bell and Mr MacNeil said: "You will realise by now the seriousness of the cash-for-honours scandal with the first arrest now having been made.

"We suggest you no longer attempt to dismiss this lightly."

Smith: Strictly on the record

THESE are new excerpts from an exchange between Smith and a reporter posing as a frontman for a fictitious businessman, Malcolm:

Smith: "I'll introduce him [the businessman] to David Miliband and say, 'Knighthood? This is the man'."

[Later] Smith: "Miliband is going to be the next leader after Blair."

Reporter: "Really?"

Smith: "Oh yeah."

Reporter: "So you think if Malcolm got involved with him, he'd probably recommend him for a knighthood as well?"

Smith: "I would say to Malcolm, 'Let's go for Miliband'."

Key names in machinery of party finance as inquiry closes on PM

THESE are the men and women being linked to the loans-for-peerages affair:

Des Smith

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A former senior adviser to government's city academy programme. Arrested on Thursday and helping police with inquiries after telling an undercover reporter donors could obtain peerages and honours by giving money to the controversial schools scheme.

Lord Levy

The Prime Minister's chief fundraiser and president of the academy schools trust to which Des Smith was an adviser. Determined not to be the "fall guy" for the row, he has insisted he was against the secret loans from the start but relented after Tony Blair warned the Labour Party would face bankruptcy without them.

Ruth Turner

The head of government relations, who also operates out of Downing Street, Ms Turner could be questioned over which private firms the Prime Minister met and whether there were any links to honours or government contracts being handed out.

Baroness Morgan

Sally Morgan, a former Cabinet Office minister, used to be director of political and government relations. She, too, would hold details of meetings with private firms.

Jonathan Powell

Tony Blair's taxpayer-funded chief of staff, he mixed with wealthy VIPs courted by Lord Levy at lavish receptions in his London home.

Matt Carter

The former general secretary of the Labour Party is believed to have hatched the secret loans plan with Mr Blair and Lord Levy to stave off a cash crisis ahead of the last election.

Ian McCartney

The Labour Party chairman is expected to be interviewed by police. He signed the papers nominating three of the lenders for peerages while he was in hospital recovering from a triple heart bypass operation. He has insisted "every penny" of the loans was spent on getting Labour MPs re-elected.

David Miliband

Billed as PM-in-waiting, implicated by Des Smith, but claims he only met the headmaster in his capacity as a minister

Dr Chai Patel

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The founder of the Priory, the detox clinic to the stars, Mr Patel revealed last month that he had made a 1.5 million loan to the Labour Party weeks before being nominated for a peerage.

David Garrard

The property tycoon confirmed that he, too, had loaned money before being nominated.

Rod Aldridge

Another lender to the Labour Party, Mr Aldridge resigned from his top job at Capita, a company which has more than 1 billion of government contracts. Scotland Yard has indicated it could widen its inquiry to investigate potential cash-for-contracts allegations.

Lord Adonis

The junior education minister and former Downing Street adviser is expected to be questioned by police. He has previously insisted that "we have nothing to hide".