Lakshmi Mittal, the Indian billionaire and richest man in Britain, has made a £2 million donation to the Labour party, it was confirmed today.

The donation, which was disclosed by the Sunday Times last weekend, is the latest of a number of gifts the steel tycoon has given to the party. It will come as relief to Labour chiefs who have struggled to attract the funding of rich supporters ever since the launch of a police investigation into the cash-for-honours affair.

The party is facing financial crisis as it reaches a series of deadlines to pay back loans to other millionaire backers who lent the party a total of £14 million in the run-up to the 2005 general election.

Labour sources insisted that the money from Mr Mittal would not be used to pay off its existing loans, but documents released in November last year revealed that £7 million was due to be repaid by the end of 2006, with a further £11 million this year.

The party said at the time that "acute cashflow problems" were preventing it from paying back loans as they came due. A spokesman today declined to confirm whether any had been paid off since then.

Mr Mittal, who, with an estimated fortune of more than £14 billion and is believed to be the fifth richest man in the world, previously came under the spotlight when Tony Blair backed one of his business deals after he gave the party £125,000. He was not among the wealthy lenders who bankrolled the 2005 election campaign and there is no suggestion that he has sought any honours in return for his support for Labour.

In a statement, the billionaire said: "I am a long-term supporter of the Labour Party and the work it has done in the United Kingdom to improve the overall prosperity and prospects of the country since coming to office in 1997."

Mr Blair said: "I am delighted that Mr Mittal, who is one of the world’s most successful businessmen, has made such a generous donation. I thank him for his continued support for the Labour Party."

Hazel Blears, Labour Party chair, added: "Mr Mittal has been a committed supporter to the Labour Party for many years. We are grateful to everyone that contributes to the Party and greatly appreciate this very generous donation."

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