Tony Blair was noticeably more uncomfortable yesterday talking about the state of his party’s finances than the votes on the Education and Inspections Bill on Wednesday. His embarrassment is understandable. That Jack Dromey, the Labour Party treasurer, was not informed of the details of the large loans secured by Lord Levy is something of a red herring in this controversy. It is the Labour Party general-secretary who, legally, is responsible for these items and both he and Ian McCartney, the party chairman, were aware of the arrangements. The real issue is whether anybody bar Lord Levy has any idea of what was promised, directly or indirectly, in return.

It is, therefore, in Mr Blair and the Labour Party’s interests to engage in some ex post facto candour. It would be wise to release the names of all who loaned money to the general election campaign, the exact terms on which they agreed to do so, the account into which their donations were placed and whether repayments have been made to these individuals. If not, then what is, alas, not an abnormal or an illegal but an ethically dubious practice will leave a foul odour. In a sense, though, the system has already worked in this instance. It is to be hoped that this method of raising money for political parties will not be repeated. The Electoral Commission yesterday “asked” that all loans be reported as if they were gifts and it will be very hard for Mr Blair, or David Cameron for that matter, to dismiss that request. The House of Lords Appointments Commission has now proved its mettle by challenging the nominations of those it considered to be inappro-priate for the Upper Chamber. The Prime Minister has conceded the need for further reform in the appointments of peers.

The disinfecting spotlight of scrutiny is the best means of preventing misbehaviour by the political parties. It is far preferable to having the taxpayer subsidise the entire political process or banning sizeable donations from individuals but letting the trade unions or large companies dig deep. In a perfect world, millions of citizens would willingly pledge small sums to the political parties of their choice and there would be no danger of disproportionate influence. In the absence of the ideal, what matters is that all contributions of any scale are made public and the possible link to proposed honours will thus be highlighted.

If it is difficult (and not necessarily desirable) to regulate the supply of political money, it would be possible to depress the demand for it. It is no coincidence that the eternally effervescent Lord Levy went into overdrive in the 12 months before polling day last year. The main parties were allowed to spend up to £18.84 million for that contest and were determined to come as close to that ceiling as they could. Yet a vast percentage of this tally was wasted on bloated staffing, pointless poster sites and crude advertisements that will not have swayed one elector. That maximum amount can be cut in half (maybe two thirds) without inflicting serious damage on democracy.

If political parties had to be more open about how they obtained smaller amounts of money, they would be less prone to subterfuge and scandal. Mr Blair insisted yesterday that he and other party leaders would be “abso-lutely delighted” if they did not have to raise as much money. Well, the solution lies squarely in his own hands.