By Julie Hyland - 27 February 2002

A scandal over a millionaire Indian businessman's donations to the Labour Party, and the extent to which this influenced government policy, has revived allegations of government corruption and sleaze.

Yet, whilst making headline news, coverage of the scandal is aimed at obscuring any real understanding of the issues involved. The longer the affair goes on, the clearer it becomes that rival sections of the political establishment are manipulating events for their own ends.

At first glance the issues seem simple. Late in May 2001, Lakshmi Mittal gave £125,000 to the Labour Party. On July 23, Prime Minister Tony Blair sent a letter to newly elected Romanian Prime Minister Adrian Nastase supporting a bid by LNM, Mittal's company, to take over the country's nationalised steel giant, Sidex.

A clear case of you scratch my back, and I'll scratch yours, assert Blair's most prominent critics-the Sunday Telegraph which leaked the story, the Welsh nationalist party Plaid Cymru and the Conservative Party. Not so, says the government. Blair was not aware of Mittal's donation when he signed the letter, which he did on Foreign Office advice. And, even if he had been, he would still have signed because the prime minister was doing what every good minister should do-standing up for British interests in a vital area of Europe that had just opened up to international investment.

The problem is that LNM isn't British, counters the opposition. Lakshmi Mittal is an Indian citizen, owing £471,000 in unpaid taxes and LNM is a global network, registered in the Dutch Antilles and employs just 100 people in the UK. More importantly, Mittal's specialism in buying up virtually defunct state-run factories in eastern Europe and Asia and turning them into cheap labour platforms, directly competes with what Blair's opponents argue are genuinely British firms. Thus, in backing Mittal's bid the prime minister was clearly filling the party's coffers above the interests of the nation. Calling for an inquiry, Conservative Party leader Iain Duncan Smith said, "We want to know why he [Blair] said it was British when it is clearly not British, and we now need to know just exactly what this arrangement was".

In a recent South Wales by-election Plaid Cymru used Blair's backing for LNM to accuse Labour of "actively undermining" Welsh steelworkers. Wales is home to the Anglo-Dutch Corus steel plant, which last year announced more than 6,000 job losses.

Its claims were supported by Graham Mackenzie, from Cardiff-based Allied Steel and Wire, who said that whilst his firm employed 1,300 people in the UK, and paid its taxes, it was not a recipient of government help. The firm had lost business worth £5 million due to competition from cheaper producers in Eastern Europe, Mackenzie said. At the very least the prime minister should apologise for backing a major competitor and "follow that up with some very specific action by the government to revitalise UK manufacturing".

Blair attempted to dismiss the affair as "garbagegate"-reiterating his claim that he knew nothing of Mittal's donation and that it had taken him just 30 seconds to sign the letter, at the request of Richard Ralph, Britain's ambassador to Romania. Both LNM headquarters and Lakshmi Mittal's home are located in London, and the millionaire is registered on the voting register, he said.

Cabinet office minister Lord Macdonald explained that "if you've got a global company like this [LNM], trying to position itself in different markets, then of course there may be contradictory elements to it. But what we are concerned about is backing a broad range of international opinion that says modernise Eastern Europe, modernise Romania, encourage that process and let Britain have an influence on it."

The Financial Times pointed out that Blair's letter endorsing Mittal's bid for Sidex-described in some newspaper articles as a "secret communication"-had been in the public domain for almost a year. Ambassador Ralph had read it aloud at a public ceremony marking the LMN deal last July and released copies to the press. So proud was the government of this missive that the British Embassy had posted excerpts on its website. In November, Prime Minister Nastase had addressed the Confederation of British Industry on Romania's "privatisation of the decade" and urged more UK firms to follow suit.

Writing in the Guardian, Hugo Young pointed out that, especially during Western intervention against Yugoslavia in 1999, the British government had been keen to keep Romania on board. Visiting the country that year, Blair promised British help for the country's accession into the European Union, in return for which the new government would have to demonstrate its commitment to dismantling the former state-run industries.

Privatisation of Romania's debt-ridden steel industry was seen as an important marker of its intent, whilst LNM's expertise in the takeover of such firms made it a leading bidder. Mittal's bid was backed overwhelmingly by the 23-country strong European Bank for Reconstruction and Development (EBRD). Established in 1991 to aid the privatisation of former nationalised industries in Eastern Europe, the EBRD also loaned LNM £70 million towards its £500 million acquisition costs.

Whilst stressing international backing for the bid, Labour has also defended its support for LNM as being governed by "national" concerns. Blair's involvement became crucial when LNM's bid looked shaky after France, an original contender for Sidex, revived its offer on more favourable terms. With French Prime Minister Lionel Jospin on his way to Bucharest to lobby for the French bid by Usinor, the British Foreign Office decided to go straight to Blair for help, and he duly obliged. Better a company with some links to Britain, no matter how tenuous, than allowing one of its major rivals to steal the march, runs the argument.

Unlike previous scandals, such as the £1 million donation by Formula One magnate Bernie Ecclestone to Labour, this one has largely failed to make an impact on much of the population, which fails to be morally outraged or surprised by either Blair's political relations with big business or his supposed lack of patriotism. But there are important issues raised by the controversy, even if one is understandably cynical about allegations of political sleaze emanating from the fetid swamp of the Tory party and its media.

The first is the extent to which Blair's Labour government functions wholly as a tool of big business. Dealings between corporate figures and politicians have always been a feature of British politics, but in the past such relations passed mainly through the Conservative Party as the primary political representative of British capital. The election of Blair as Labour leader changed all that. As part of the drive to break the party's historic connection with the working class, Blair ditched Labour's commitment to social reformism whilst seeking to develop a new social basis for its support amongst big business. In that sense Blair speaks the truth when he states that there is no conflict of interest between his government's policies and the interests of the major corporations. Labour's insistence that all political donations made by corporations should be publicly declared, far from breaking the ties between government policy and business interests, or making them more transparent, as Blair claimed, has only to served to institutionalise such relations as a basic feature of official politics.

Secondly, the affair has exposed the depth of the divisions within the bourgeoisie over questions of strategic orientation, specifically with regards to Britain's relations with Europe and America. Blair's claim that there is a perfect symmetry between Labour policy and business interests is foolhardy, given that it is impossible to speak of business as possessing a uniform world view that chimes with that of Number 10. Longstanding divisions over whether Britain is best served by an economic and political orientation to the US or the European Union have been brought to a head by the increasingly unilateralist stance of the Bush administration.

As relations between the US and Europe become ever more tense, the Conservative Party is demanding that British policy recognise the reality of the new mono-polar world and side firmly with America against Europe. They have seized on Blair's support for LNM to demonstrate how Labour's policy is undermining Britain's "special relationship" with its transatlantic ally.

LNM has been competing directly with American firms for the takeover of state-run industries in Eastern Europe. The US was the only country to oppose Mittal's bid for Sidex on the EBRD, whilst, more recently, LNM appears to have won out against the giant US Steel corporation to takeover the Czech republics loss-making Nova Hut plant.

If that was not enough, Mittal, who also runs Chicago-based Ispat Inland, America's sixth largest steel producer, has spent $600,000 (£420,000) lobbying Bush to impose trade tariffs on imported steel. Steel bosses in Britain, supported by the trade unions, have said that such tariffs would have a disastrous impact on Corus, which sells £250 million worth of steel to the US each year. Consequently, the Tories argue, Blair's support for Mittal has served to strengthen a major British competitor in its key market.

Differences within the ruling elite have become so antagonistic they can no longer be contained. Neither side of the policy divide believes that it can win a popular mandate for its policies and fight things out in an open and honest form. Consequently the whipping up or manufacture of scandals, disseminated through a politically biased media, is becoming the favoured means through which rival factions of the ruling class fight to ensure their political line wins out.

The state of almost permanent warfare within the establishment is destabilising every aspect of government. In an unprecedented move, a former top civil servant openly attacked Blair at the weekend. In an article in the Sunday Telegraph, Sir Richard Packer dismissed the prime minister's contention that Ambassador Ralph had been entirely responsible for the Mittal letter, and condemned Blair's intervention on LNM's behalf as "grossly disproportionate". Sir Richard Packer, who spent 33 years in Whitehall and nine years at the Ministry of Agriculture, retired in 2000 and was nominated for a knighthood by Blair in that year's honours list. In running his comments, the Telegraph was moved to state that there was "no suggestion" that Sir Richard Packer's comments were "the result" of civil service collusion, although his former colleagues "will derive much wry satisfaction from his devastating analysis". - wsws.org

By Peter Reydt 1 May 2002

Over the last weeks there have been allegations that the multi-millionaire businessman Lord Levy has been paid up to £250,000 over a three year period, by the Australian shopping-centre group Westfield to provide access to ruling circles in Britain. Levy claims the payments were for business consultancy regarding Westfield's expansion drive in Britain and not for political access.

Levy is a key player within the government. He is often described as Labour's chief fundraiser and has procured millions in donations for Prime Minister Tony Blair's private office. He also acts as Blair's personal envoy to the Middle East. Coinciding with his three-year service for the company, he made 45 trips to 19 countries in the Middle East.

There were accusations that Lord Levy did not register his income from Westfield. But it was subsequently reported that his contract with the company was terminated the day before new rules concerning the registration of peers were enacted, enabling Levy to claim he has done nothing wrong legally. This is not the first time that Levy has been accused of financial wrongdoing. In 2000 he came under criticism for his tiny tax bill of just £5,000 during one tax year. At that time as well, legally Lord Levy had done nothing wrong.

A public discussion over the question of whether what Levy's conduct was legally above aboard, or even whether he was giving access to politicians or not becomes almost a side issue, however.

Once again, the degree to which Labour has become enmeshed with big business figures has been vividly demonstrated-adding to the pervading stench of corruption emanating from a government many already believe is for sale to the highest bidder. The timing of this latest scandal is especially bad for Blair, since there has been a string of allegations of political favouritism involving Labour Party donors.

On the question of providing access, moreover, whatever he might say, having Lord Levy on the books automatically provides contacts with the highest echelons of government-for these are the circles in which he mixes.

The head of Westfield's UK arm, Peter Allen, admitted freely that the company regards access to governing circles as essential for their plans to expand in Britain. Allan has said that he has been to "different Labour Party events at Downing Street," and that the company spends a "long time working with local authorities and central government in terms of building and developing relationships, which should bode well in getting planning permission."

He told an undercover investigative reporter, "I'm developing relationships with ministers within the DTI (Department of Trade and Industry) and other departments on a one-to-one basis. A relationship in the UK comes down to my influence with the central government."

What has been given less attention is the question of what Lord Levy's leading political role reveals about Labour policy in the Middle East. Levy is a prominent Zionist who counts former Israeli Prime Minister Ehud Barak as his personal friend and tennis partner. He is a leading member of such organisations as the Jewish Agency and the Joint Israel Appeal. Levy also has a business and a house in Israel and his son worked for the former Israeli justice minister under Barak.

Even if his business practices are impeccable, the media virtually ignored the obvious question: what is a man whose political outlook is so clearly pro-Zionist doing as a special envoy to the region? After all the Blair government claims to be impartial and even handed in Israel's conflict with the Palestinians.

There has been only one serious article on the relationship between Levy's appointment as Blair's Middle East envoy and Labour's tacit support for Israel-by John Pilger, entitled, "Blair's disguised support for Sharon and the Zionist project", reprinted in the New Statesman January 14, 2002.

Pilger claims that British support for Israel repression has accelerated under Blair and he backs this up by hard facts. "Last year alone, the government approved 91 arms export licences to Israel, in categories that included ammunition, bombs, torpedoes, rockets, missiles, combat vessels, military electronic and imaging equipment and armoured vehicles."

The article notes that according to the authoritative Jane's Foreign Report, "Britain and France had given 'the green light' to Sharon to attack Arafat if the Palestinian resistance did not stop. The British government was shown a plan for an all-out Israeli invasion and reoccupation of the West Bank and Gaza 'using the latest F-16 and F-15 jets against all the main installations of the Palestinian Authority [and] 30,000 men or the equivalent of a full army'."

According to the Palestine Solidarity Campaign, the British Labour Party took a full-page advertisement in the Jewish Chronicle last year to boast of its support for Israel. The advertisement read, "Since 1997 a record 57 Labour MPs have visited Israel, mostly with Labour Friends of Israel, swelling the number of MPs willing to ensure balance on the Middle East in the House of Commons. More Labour MPs have visited Israel than from any other party."

The advertisement explained, "Trade between Britain and Israel has grown incredibly by 20 percent, while there have been 34 official trade missions to Israel from the UK since 1997. The unique BRITECH agreement means there is now a £15.5 million joint fund to encourage cooperation between British and Israeli hi-tech industries in research and development for their own benefit."

Blair has stood by Lord Levy, not simply because he is a cash cow for the party who can rake-in millions due to his business connections, but because his Mideast role sends a signal to the Israeli government, Britain and Israel's main ally, the Bush administration in the United States, as well as many of Labour's key financial backers who are to be found amongst the highest echelons of British Zionism, that Britain will not stand in the way of Sharon's offensive against the Palestinians, whatever its occasional public criticisms. - .wsws.org

By Greg Hurst, Political Correspondent

THE watchdog that scrutinises nominations to the House of Lords faces the biggest test of its six-year history after opposing plans by Tony Blair to give peerages to three wealthy donors to the Labour Party.

The House of Lords Appointments Commission has blocked the nominations of Sir David Garrard, Chai Patel and Barry Townsley, provoking a stand-off with Downing Street that has delayed a new list of working peers.

Mr Townsley withdrew his name last month, complaining of unwanted media attention and saying that he no longer wished to be considered. A fourth nominee, Robert Edmiston, who was proposed by the Conservative Party, is also the subject of further inquiries.

The commission, chaired by Lord Stevenson of Coddenham, the chairman of HBOS bank who is a close friend of Peter Mandelson, has previously raised questions over the nominations of prospective Conservative peers, notably Lords Black of Crossharbour, Ashcroft and Laidlaw.

But this is the first time that the commission has in effect blocked a list of working peers because of doubts over several of the Labour nominees.

Mr Patel is the head of the Priory group of clinics and has made two modest donations to Labour but is believed to have given substantially more before a change in the law requiring all donations to be declared.

Sir David is a property developer who has given £200,000 to Labour and sponsored Bexley Business Academy with more than £2 million. He previously gave £70,000 to the Conservatives.

Mr Townsley, founder of a stockbroking firm, sponsored Stockley Academy, which opened in Hillingdon, West London, in 2004, for around £1.5 million. He has also given £6,000 to the Labour Party.

Mr Edmiston, head of the IM car importer group, has given £250,000 to the Tories. - times online

Patrick Hennessy, Melissa Kite and Chris Hastings / London Telegraph | March 19 2006 - via ft.com

Businessman admits he was one of the 'secret lenders'

Evidence linking Tony Blair personally to the £14 million "loans for peerages" scandal engulfing Labour can be revealed today. A certificate putting forward a nominee for a peerage - and misleadingly stating they did not have a financial relationship with the party - was filled in inside No 10, Labour sources have told the Sunday Telegraph. Ruth Turner, the Prime Minister's head of government relations, played a key part in arranging the application, as well as at least one other. They were then taken to the hospital bedside of Ian McCartney, the Labour Party chairman, who signed them. The certificates were then sent to the House of Lords Appointments Commission, whose members are understood to be "concerned" that they might have been misled about the financial relationship between nominees for peerages and political parties.

The new revelations about Downing Street's direct involvement put responsibility for the potentially misleading certificates squarely at Mr Blair's door. In a further twist last night, it emerged that Ms Turner had visited Mr McCartney in hospital around the time he signed the certificates. Downing Street attempted to play down her role in the affair last night. However a source at No 10 later admitted: "We are not saying she didn't go to the hospital. She visited him as a social call. It was purely a social visit."

Lord Levy, Mr Blair's personal fund-raiser, is understood to be attempting to take steps to avoid blame for the loans row. He has told colleagues he had serious reservations about the decision to start accepting loans which, unlike straight donations, do not have to be publicly declared, and that the driving force behind the decision to do so came from No 10.

Senior figures, including Gordon Brown and John Prescott, were kept in the dark about the loans.

An ICM poll for today's Sunday Telegraph shows 73 per cent of voters, in the light of the scandal, now believe Mr Blair's Government is as "sleazy" - or more so - than John Major's scandal-hit Conservative administration. Mr Blair accepted responsibility for the row last week, declaring: "As leader of the Labour Party, I take responsibility for all that is done in its name.'' His comments were made, however, before it was known that the peerage nomination certificates were drawn up inside No 10 and that a key role was played by Ms Turner, one of his inner circle of trusted advisers.

The certification documents, which are filled in by all parties who wish to nominate supporters for a peerage, go to the Appointments Commission where they are scrutinised by a six-person committee including Lord Hurd, the former Conservative foreign secretary. Among Labour's list of nominees were three people who had provided loans totalling about £4 million - Chai Patel, the head of the Priory clinic, Sir David Garrard, a property developer and Barry Townsley, a stockbroker. All were turned down for peerages by the commission. A fourth name is understood to be Gulam Noon, the entrepreneur, who said he lent Labour £250,000. His nomination is not thought to have been turned down - although no final announcement of the new working peers has yet been made. Jack Dromey, the Labour treasurer, ignited the row last week by going public to declare that he had known nothing about the loans.

Unlike donors to political parties, who must be identified by law if they give more than £5,000, those who provide loans can have their names kept secret. In the furore sparked by Mr Dromey's comments, Labour admitted that the total amount of loans it had secured last year was £14 million and that there were other names on the list besides the four who have become known.

Mr McCartney has told colleagues that he gave permission to Matt Carter, the former general secretary, and Lord Levy to secure loans for Labour for the first time. However, importantly, he is said to have not been told the identities of those who loaned the money. In the autumn of 2005, Mr McCartney had two heart operations. It was after the first that the certificates arrived at his bedside for him to sign. Labour sources said that one of those nominated for a peerage was said on a certificate not to be a Labour donor - which was true. Another was said not to have any financial involvement with Labour, which was wrong because they had loaned the party money. Mr McCartney did not know the names on the certificates included people who had made loans. He is understood to have been keen to get his version of events into the public domain because he feared becoming the "fall guy".

A spokesman for Mr McCartney said last night: "Had he known any of the people had lent money, even though that is technically allowed, he would have ensured that the information be included in the certificates."

A Downing Street spokesman said: "We have always said we would not want to comment on the process of how people are nominated."

The Sunday Telegraph has obtained blank "model certificates". They include three alternative declarations, labelled a b and c, and have to be filled in according to the nature of the financial relationship between the person being recommended for a peerage and the party. Loans are not specifically mentioned. - telegraph.co.uk

Four of 12 businessmen identified nominated for party's working peers list but were blocked

Patrick Wintour, political editor - Tuesday March 21, 2006 - The Guardian

A dozen businessmen who gave the Labour party £13.9m in loans were named yesterday as the government attempted to regain the moral high ground in the cash for peerages scandal. Four of those named were nominated for peerages in Labour's working peers list, but now for different reasons they have had their nominations blocked by the Lords Appointments Commission. None of the new names revealed yesterday has been forwarded for honours. One of those named was Rod Aldridge, head of support services firm Capita who passed Labour £1m in loans. His company undertakes considerable business for the government. He insisted the one-year loan was a personal matter on commercial terms.

Labour has wrung out an agreement to publish the names of its backers over the past few days, allowing the deputy prime minister, John Prescott, to challenge the Tories to match Labour's openness by revealing both the size of its loans, and the identity of its lenders. Mr Prescott MP said: "We call on David Cameron to match his words on openness with actions by publishing details of all the Tories' loans." He said the Conservative party had referred queries about loans it has received to its annual accounts for 2004. "However the Tories have not revealed the total amount of all the loans received by the party since the Political Parties, Elections and Referendums Act came into force, including the figures for 2005 - neither has it so far revealed the names of those who gave loans," Mr Prescott said.

David Cameron rejected the demand saying the Tories' backers would remain private since it would not be right for names to be published retrospectively.

The Tory party treasurer, Jonathan Marland, said that he had found the practice of taking loans from individuals to be very useful. "It is a very, very good mechanism for us to help our cash flow. We could go to the bank and borrow within our limits. We prefer not to because you never know quite when you need an overdraft facility," he said.

Mr Blair's move came ahead of what is likely to be a stormy meeting of the national executive today in which some left-wingers are preparing to call for "heads to roll" if any official, or Labour politician is found guilty of offering peerages in return for cash.

The government also announced it was rushing forward fresh legislation that will in future close the widely used loophole that allows the names of commercial lenders to political parties not to be disclosed. The government may yet make this legislation retrospective. The lord chancellor, Lord Falconer, revealed he will this week table amendments to the electoral administration bill currently going through the Lords.

The government also announced the terms of reference of an inquiry by the former civil servant Sir Hayden Phillips to look into the future of party political funding, including possible caps on donations and lower overall spending limits. He will report within nine months.

The frantic activity was designed to crowd out Mr Cameron's proposals to clean up politics. Mr Cameron also won agreement from Mr Blair to discuss how to build an all-party consensus on funding.

The size of the £13.9m loans rustled up by the party's senior fund raiser Lord Levy in the run-up to the election caused consternation among left-wing MPs. Ian Gibson, MP for Norwich North and member of the left-wing Campaign group, said last night: "This is astonishing to the activists who spend their time delivering leaflets and fighting dogs on the doorstep to win elections. It's not on. People will not accept it and they will think that all parties are the same and take money wherever they can get it.

"People don't give money for nothing, they either give to get jobs or business, the world doesn't change. These are commercial loans so where is the party getting the money to pay the interest rate".

The loans do raise issues about Labour's financial liability. The party's 2004 accounts shows the party with £12.1m of loans in 2004. The total level of borrowing will now be substantially higher. Labour yesterday did not give details of the terms of the loans.

Property developer Sir David Garrard topped the list with a loan of £2.3m, followed by fashion tycoon Richard Caring and science minister Lord Sainsbury who each loaned £2m.

The Tories poured scorn on Labour's travails during Lord Falconer's statement to peers setting out his plans to tighten the disclosure rules. Lord Strathclyde, the Tory leader of the Lords, said: "I have no sympathy at all for the prime minister and his coterie of cronies who are at the heart of this affair. They have dragged politics, their party and sadly this house into disrepute and the buck stops firmly at No 10."

For Lord Falconer to claim he had found a loophole in the legislation "sounded all too much like the burglar caught in the back garden with a bag of swag who says he only wanted to polish the silver", Lord Strathclyde said.

Lord Goodhart, the Liberal Democrat peer, said the government must close the next loophole by treating any guarantee on bank loans as donations.

Giving a flavour of the reception facing Mr Blair today at the national executive, Harriet Yeo of the committee said: "Most people that joined the Labour party joined because they wanted to see probity in politics, they do not want to see people buying their way into democracy.

"Anyone who knew about the peerages and knew about the loans needs to be investigated very carefully, and if anything is proven - if there is a link between the loans and the peerages - those people who knew about it, whoever they are, should go."

An ICM poll for Newsnight broadcast last night shows 29% of those surveyed believe Mr Blair should resign now and another 21% said he should go within a year. Twenty three percent said he should stay longer than a year before standing down.

The donors

- guardian.co.uk

By Ben Hall, Political Correspondent - March 21 2006 - FT.com

The heads of a dozen of the world's largest companies are to advise Gordon Brown on policies to improve the competitiveness in the UK economy.

Ahead of Wednesday's Budget, which will draw heavily on the need to address long-term economic challenges, the chancellor on Tuesday launched his International Business Advisory Council that includes Bill Gates, chairman of Microsoft, Lord Browne, chief Executive of oil company BP and Bernard Arnault, the chairman of LVMH, the French luxury goods group. Other senior executives offering their views on how Britain can adapt to global economic competition include Lee Scott, chief executive of Wal-Mart, the world's largest retailer, Meg Whitman, chief executive of e-Bay, and Robert Rubin, the chairman of Citigroup and a former US treasury secretary under Bill Clinton. Li Ka-shing, chairman of Hong-Kong-based Hutchinson Whampoa, the biggest Asian direct investor in the UK, and Ratan Tata, chairman of India's Tata industrial group, will contribute their views of how Britain can adapt to intense competition from China and India.

The group will gather once a year for the next three years in Downing Street. The first meeting will take place later this year.

Mr Brown's ability to pull in some of the biggest names in international business will help boost his credentials as a heavyweight figure on the global stage ahead of Wednesday's Budget confrontation with David Cameron, the relatively inexperienced Conservative leader.

But opposition MPs have attacked the chancellor for tapping some of the best known international business figures for their views when there was no shortage of advice from British business bodies about the long-term threats facing the UK economy.

"These are very eminent individuals whose advice the chancellor will benefit from, but there are people closer to home who have been providing the chancellor with advice on competitiveness for years," said Vince Cable, the Liberal Democrat Treasury spokesman "The CBI, Federation of Small Business and the Institute of Directors have been warning the chancellor that his overcomplicated tax system, excessive and cumbersome regulation, and Britain's declining infrastructure are all undermining our competitiveness."

Since 1997, Mr Brown has ordered a string of reviews of government policy by prominent business figures.

In a statement, Mr Brown said: "There is no more important question for advanced industrial countries today than how to rise to the challenges and opportunities of globalisation. In Britain we have strong foundations, built on macroeconomic stability, openness to competition and trade, and investment in infrastructure, science and skills. "But we must do more. I am delighted that some of the world's leading business people have agreed to join this new Advisory Council. The Council will advise on how we can do more to rise to the challenges we face and ensure that the UK remains one of the world's key locations of choice for high value-added activity, working together to pursue a less protectionist world."

The members of the group are:

* Bernard Arnault, Chairman and CEO, LVMH
* Lord Browne, Group Chief Executive, BP
* Dr Jean-Pierre Garnier, CEO, GlaxoSmithKline
* Bill Gates, Chairman, Microsoft Corporation
* Sir Ka-shing Li, Chairman of the Board, Hutchison Whampoa Ltd
*Sir Terry Leahy, CEO, Tesco
*Sir John Rose, CEO, Rolls Royce
*Robert Rubin, chairman, Citigroup
*Lee Scott, CEO, Wal-Mart
* Ratan Tata, chairman, Tata Group
* Meg Whitman, CEO, eBay
* James Wolfensohn, former President of the World Bank

- BBC Published: 2006/04/1 - A head teacher arrested as part of a cash for honours probe has been freed on bail "to return... pending further inquiries", Scotland Yard has said. Des Smith, 60, had been held for questioning under the 1925 Honours (Prevention of Abuses) Act. In January, he had suggested sponsors for the government's flagship city academies programme would be given honours in exchange for funding. Mr Smith later quit his post with the Specialist Schools and Academies Trust.

The trust helps the government recruit education sponsors. Set up in September 2005, its president is Lord Levy, Tony Blair's chief political fundraiser and close friend.

'Desperately sorry'

Mr Smith quit his post on the SATT council in January after admitting he had been "naive" when talking to a reporter posing as a potential donor's PR assistant.

He reportedly told the Sunday Times that "the prime minister's office would recommend someone like [the donor] for an OBE, a CBE or a knighthood". After his resignation he told the Guardian he had "been shattered by the experience. I was naive, I shouldn't have said what I did. I'm desperately sorry".

Downing Street said at the time it was "nonsense to suggest that honours are awarded for giving money to an academy".

Mr Smith remains headmaster of the All Saints Catholic School and Technology College, Barking and Dagenham.

Local Labour MP Jon Cruddas told the BBC Mr Smith had greatly improved results at the school and should be judged on his "21 years as a significant local public servant". "He is a fantastic head teacher," he added.

Investigation widened

In a separate development, elections watchdog the Electoral Commission publishes a new draft code of conduct on reporting loans in the wake of discussions with the main political parties. It says the parties agree to report any loan more than £5,000 - or more than £1,000 if the donor has given another amount that needed to be reported in that year. The draft code says "this would apply whether or not the party regards the loan as having been made on commercial terms".

The cash-for-honours inquiry was originally launched in response to a complaint by Scottish and Welsh nationalist MPs that Labour had broken the law preventing the sale of honours such as peerages and knighthoods. It has since been widened to cover the activities of other parties.

The investigation is being led by Deputy Assistant Commissioner John Yates, who has said he is prepared to widen the investigation to consider more general allegations of corruption. It followed reports that the House of Lords Appointments Commission had blocked the appointment of four of Prime Minister Tony Blair's nominations for peerages - all wealthy businessmen who had made loans to Labour. None was on the list of new working life peers when it was published on Monday. One Tory nominee - who had loaned the party £2m - also missed out on a seat in the upper house.

Mr Yates has already told MPs that he is prepared to widen the investigation to consider more general allegations of corruption.

Unlimited fine

The Specialist Schools and Academies Trust describes itself as the "leading national body for secondary education in England, part funded by the DfES (Education Department), delivering the government's Specialist Schools and Academies programme.

Anyone found guilty under the 1925 Honours (Prevention of Abuses) Act - designed to deal with those who both give and accept honours under inducement - could face imprisonment for up to two years or fined an unlimited amount.

The Act was introduced after the scandal of the early 1920s when David Lloyd George was offering peerages and lesser honours at a price.

Scotland Yard is now investigating Labour's secret loans scandal. So how serious is it for the Prime Minister, a key mover in the affair?

1. Why did the Labour Party need to raise £14m in the first place? And why was this money raised as loans rather than gifts?

The party was strapped for cash for the general election campaign, and needed an urgent injection of funds to prevent it being outspent by the Tories. Lord Levy, the party's fundraiser-in-chief, advised that millionaires were more ready to give loans than donations because it avoided the embarrassment of disclosure of names. Tony Blair and ex-General Secretary Matt Carter knew about the secret loans deal. But senior figures such as Gordon Brown and John Prescott did not were kept out of the loop.

2. Can the loans be converted into donations at a later date?

Yes. There is nothing to stop the loans quietly being turned into donations when the dust has settled. Some of the lenders, such as Chai Patel, actually offered donations but were told to make them loans.

3.Over what time period are the loans to be repaid? And what plans are in place for the repayment of the loans?

The repayment terms are believed to be between 3 to 5 years, but are being kept secret. The lenders were told that they could have the loans rolled over and renewed indefinitely if they are not paid off within the term.

4. The Labour party have said that the loans are at "commercial rates". What does this mean. For instance, is the interest repaid monthly?

Interest is base rate plus 2 per cent. The party has made provision in its accounts to start repayments this year. But it is not like paying a regular mortgage. Repayments are being made over several years, and are likely to be flexible.

5. Have any of the loans been repaid yet?

No. Officials said it would cause "difficulty" if the lenders asked for their money back.

6. Are there any beneficial tax implications, either for the party or the lender

No. Parties are not charitable institutions and lenders cannot claim tax relief. But that could change. Meanwhile, the lenders will have to pay tax on any interest paid to them ... if they claim it.

7. If a business in financial trouble were to seek an unsecured £2m loan from a bank, what would the reaction be?

The risk factor would substantially increase the interest rate payable by at least a percentage point or two, and there would be tighter policing of the repayments. Any defaults would lead to the loan being called in. That is not going to happen with these loans.

8. Did the Tory party first use the loan system? If so, do we now know who loaned them money?

Yes, Lord Ashcroft led the way by loaning the Tory party £2.5m but he said in his biography he wants the money back. The Tories are said to have gained around £20m in loans but so far have refused to reveal lenders' names.

9. If Labour has done nothing wrong, why has the past week seen a series of admissions and initiatives?

It's a case of cleaning the stable after the horse has bolted. They know it stinks, but they are getting rid of the smell by a dose of party funding reform.

10. With more bad news from Iraq, the continuing schools rebellion and the aftermath of the Jowell affair, can Tony Blair shrug this one off? Or does the loan scandal hasten his exit from Downing Street?

The "Teflon Kid" survives again, but it won't last for long. His credit rating with the party has plummeted. His personal poll ratings have slumped and there were more calls yesterday by Tony Robinson, actor and former NEC member, for him to go. They will grow by the time of the party conference in September unless he sets the date for handing power to Gordon Brown, who takes centre stage today.

news.independent.co.uk

[by Guido Fawkes]

To secure a conviction the detectives will need to find hard evidence that honours were an inducement for donations to the city academies or to the making of loans to the Labour party. Not an incredibly difficult thing to do since we have the evidence of Des Smith, a former council member of the Specialist Schools and Academies Trust (SSA Trust), which helps the government to recruit sponsors for Blair's academies. He told an undercover Sunday Times reporter that big financial donations to help set up the schools would guarantee a gong. He put it plainly "the prime minister's office would recommend someone like [the donor] for an OBE, a CBE or a knighthood".

Asked if this would be just for getting involved in the academies, he responded: "Yes ... they call them services to education. I would say to [the SSA Trust] office that we've got to start writing to the prime minister's office... you could go to the House of Lords". It is a fact that donors to the Labour party who also supported Blair's flagship policy, through the SSA Trust, got honours. Blair got a double whammy, he got cash for the party as well as financial support for a controversial policy. By disguising the donation to the party as a loan the honour could be respectably awarded for "services to education" without anyone knowing about the bung to the party made through Downing Street. The SSA Trust provided camouflage. When exposed by the Sunday Times Des Smith recanted everything, "confessed" his naive errors, then disappeared back to teaching.

Des Smith's admission is prima facie evidence of what we all know. If you wanted a peerage, a seven-figure loan to the Labour party and the same again donated to a city academy obtained it. Levy induced it. He covertly procured the money for the Labour party. The public donations were the cover story. Take the case of Sir David Garrard, a city academy backer whose £2 million loan to the party was followed by the Prime Minister nominating him as a working peer. Was it really a coincidence? If it was nothing to be ashamed of, why did they tell donors not to openly donate the cash as they intended, but to lend it secretly? If it was honest, why did they mislead the Lord's Appointment Commission about the true nature of the financial relationship between Blair's nominees and the Labour Party?

Levy loves trusts, he did a lot of his music business through tax efficient offshore trusts. In 1995 he set up the Labour Leader's Office Fund "blind" trust to finance Blair's private office. Theoretically it was a blind trust, but we now know that it was not so blind that donors did not get peerages. Such unaccountable and unblind trusts were rightly banned in 2000 under the Political Parties, Elections and Referendums Act. David Osler in Labour Party Plc: New Labour as a Party of Business estimates that before the law tightened things up £2.5 million was raised for Blair's office through the trust - outside the Labour party's structures. We know that at least two donors to the "blind" trust subsequently got peerages - Bob Gavron and Alex Bernstein. Other peers are suspected of having made donations to Blair's blind trust. A pattern for the future was set, Levy lands the donors to a trust, Blair makes coincidental recommendations, peerages arrive in the post.

A pattern of behaviour is not proof, nor will circumstantial evidence be enough. What the police investigators will need is documentary evidence, they will need, forinstance, to look at the papers provided to the Lord's Appointments Commission, do they contain falsehoods? Who assisted in that and in doing so attempted to procure the grant of an honour. Did those people have any dealings with donors? Downing Street advisers' appointments diaries should make interesting reading. Who did Des Smith mean when he referred to the "the prime minister's office"?

Guido understands that the Specialist Crime Directorate's* Assistant Commissioner Tarique Ghaffur is treading very carefully with the investigation. Officers led by Deputy Assistant Commissioner John Yates need to seize the diaries of key people quickly before they get "mislaid". If the diaries show that a donor met anyone involved in the process of procuring honours, than clearly both the donor and the procuror will have to be questioned. Merely writing letters to those concerned requesting to talk to them next month is not good enough - the police need to go in to Downing Street and get the evidence now. *Formerly known as the "Fraud Squad".

By Andrew Pierce and Rajeev Syal

Capita boss gets key role in Brown's pet project days after £1m Labour aid

A BUSINESSMAN who secretly lent £1 million to the Labour Party was made chairman of one of Gordon Brown's flagship projects just weeks after handing over the money, The Times has learnt.

Rod Aldridge, who resigned yesterday as executive chairman of the technology company Capita, will launch the £150 million youth community service scheme with the Chancellor in May. The timing of his appointment links Mr Brown for the first time with the "loans-for-honours" affair that has engulfed the Prime Minister.

However, when asked on the Radio 4 Today programme yesterday if he was aware of the loans, Mr Brown said: "I have got to have a very clear divide between my position as Chancellor dealing with business all the time and political donations. I have never involved myself at any time in this business of political donations."

Capita, founded by Mr Aldridge, has been awarded billions of pounds of public sector contracts since Labour came to power, raising the value of the company from £100 million to £2.9 billion. Mr Aldridge's resignation came after a commercial backlash to the disclosure that he was one of the 12 businessmen who had made loans of £14 million to the Labour Party. Three of the lenders have had their nominations for peerages blocked by the House of Lords Appointments Commission, which was not told by Downing Street about the financial links.

Mr Aldridge, who has not been nominated for an honour, handed over £1 million to the Labour Party at the end of October. Weeks later he was made head of the Chancellor's youth community service scheme, which they will launch together with Charles Clarke, the Home Secretary. The Chancellor praised the scheme in his Budget on Wednesday. It will operate in direct competition to the Conservative leader David Cameron's proposed national volunteer scheme for young people. The scheme is seen as a defining project in Mr Brown's expected premiership.

In a new twist on the controversy The Times has learnt that Lord Levy, the Prime Minister's personal fundraiser, faces questioning within three weeks by detectives investigating the allegation of the sale of peerages by Labour. Detectives have already written to the party and to donors requesting documents and information. Senior officers said that they were moving as quickly as possible because of the "inevitable public interest".

The row left Mr Blair even more isolated when Jack Dromey, the Labour Party treasurer and close ally of the Chancellor, revealed that he had not been told about the loans. He demanded a full inquiry by the party's National Executive Committee. Harriet Harman, the Constitutional Affairs Minister, who is married to Mr Dromey, was abruptly withdrawn by the Labour Party from the BBC One Question Time programme last night.

Chris Grayling, the Tory transport spokesman, challenged Mr Brown's version of events. He said: "Gordon Brown has said that he did not know about the loans issue and the financial links between Mr Aldridge and the Labour Party.

"Yet it now appears that Mr Aldridge has been hired to run the Chancellor's pet project and that his company is heavily involved with another of the Chancellor's favourite schemes - the Child Trust Fund. It beggars belief that the Chancellor knew nothing about what was happening."

A spokesman for the Chancellor rejected any suggestion of impropriety. He said: "Gordon did not know anything about the loans. He has never even met Rod Aldridge."

The spokesman said that the appointment of Mr Aldridge to run the volunteering scheme - a part-time unpaid post - had been made through an open recruitment process with an independent panel which had not involved Mr Brown.

In a statement Mr Aldridge, a regular fixture at Labour's gala fundraising dinners, said that he was resigning to "ensure the group enjoys the highest possible standing and operates with total integrity".

Mr Aldridge, whose loan will be repaid with interest in October, added: "At present the group's reputation is being questioned because of my personal decision to lend money to the Labour Party. This was entirely my own decision as an individual, made in good faith as a longstanding supporter of the party.

"There have been suggestions that this loan has resulted in the group being awarded government contracts. This is entirely spurious."

The loan will be a feature of two separate parliamentary inquiries into party funding and links to donations and honours.

Capita, which manages a range of public sector projects, secured in 2004 the £430 million contract to run one of the Chancellor's pet projects, the Child Trust Fund. Mr Brown announced an extension to the scheme in the Budget.

BALANCE SHEET

Oct 2005 Aldridge makes £1 million loan to Labour
Nov 2005 offered post of head of the Chancellor's youth community scheme
Dec 2005 Capita records £1.4 billion annual turnover, 53 per cent from public sector contracts
March 23 Aldridge stands down as Capita chairman

timesonline.co.uk

By Philip Webster, Political Editor - Times online

THE Labour treasurer claimed last night that people around the Prime Minister had consciously sought to exploit loopholes in the law by raising cash for the party through loans rather than donations.

Jack Dromey said that it was "wrong" for the party - having legislated to require the disclosure of donations - to seek ways of raising money secretly. Mr Dromey sparked the row over loans to Labour last month when he revealed that £14 million had been lent last year without his knowledge or that of other elected members of the party's ruling body.

Today backers of the city academies programme are calling on sponsors to hold their nerve in the face of accusations that honours were offered in return for money. Amid fears that plans for a new generation of trust schools could be damaged, they say in a letter to The Times that they will develop new ones and support existing ones "despite the sniping at the edges which is trying to denigrate this programme".

Yesterday Lord Adonis, the Schools Minister, told the London Evening Standard that suspending plans for more independently run schools would be a "dereliction of our public duty".

Appearing on BBC Radio 4's Any Questions, which is repeated today, Mr Dromey was asked why those around Tony Blair had asked for loans, rather than donations. "I can't answer that, because the system was set up in secret without my knowing about it or the elected NEC knowing about it," he said. Asked if he believed a loophole had been "consciously" exploited, he replied: "Yes." He emphasised that no "firm proof" had emerged that peerages were traded for cash.