Townsley, aged 59, was one of several millionaire Labour donors in the frame for a peerage.

But when the names on the list were leaked in late December, it led to accusations that the prime minister was rewarding businessmen who had supported some of his more controversial policies.

Townsley has given £6,000 to Labour and a further £1.5m to Blair’s city academy programme for failing schools.

The publication of the list has since been held up to allow time for an official government honours watchdog, the Appointments Commission, to investigate the matter.

However, according to Townsley’s friends, he has now withdrawn his name.

He feels that he has had to endure harsh treatment at the hands of the press in the past two months and has decided that a peerage is not worth it.

It is expected that Townsley’s decision will now mean that the other City luminaries on the list will receive their peerages later this month.

These include businessmen Chai Patel, the healthcare entrepreneur, Robert Edmiston, chairman and chief executive of IM Group, the car importer, and David James, the City trouble-shooter who helped rescue London’s Millennium Dome from financial collapse. These last two were nominated by the Conservative party.

The list also includes Sir Gulman Noon, who has built a multi-million-pound fortune from his ready-meal curry business and has given more than £220,000 to Labour over a four-year period.

By the standards of today’s hedge-fund managers Townsley is not in the super-rich league, but he is still well connected and very wealthy.

He pocketed as much as £10m a few years ago when he sold Townsley & Co, his private-client stockbroking firm. Eighteen months ago he left that firm to become deputy chairman of Dawnay Day Corporate Finance.

Among those names on the nomination list, Townsley had come under intense criticism as has Sir David Garrard, the millionaire property developer who was previously chairman of Minerva. Garrard was knighted two years ago for charity work and he has also donated money to Labour.

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