Labour was paid £180,000 from public funds to help party officials to understand new funding rules shortly before it began accepting secret donations from a property developer, The Times can reveal.

The party applied for and received a “start-up grant” from the Electoral Commission to meet the costs of abiding by the law on declaring donations that Labour had itself enacted. It was for training staff in the duties imposed by the Political Parties, Elections and Referendums Act 2000 and was specifically for the party to prepare for its requirements on submitting accounts and declaring donations above £5,000.

The grant could also be used to hire consultants to give advice on the Act, for guidance for party officials and volunteers, and to adapt computerised accounting systems.

All parties, from the largest to residents’ groups registered with the commission, were eligible to seek grants after the Act provided for £700,000 in public funds to help them to meet its requirements. Labour received £183,052, the same sum as the Conservatives, under a formula based on votes cast in the 1997 general election and the 1999 European elections. The Liberal Democrats were given £136,840, and minority parties represented at Westminster up to £21,000 each. Small parties, including the Communist Party of Britain, received grants of £500.

Q&A: secret donor scandal

Our Political Correspondent analyses the origins of the secret donor sleaze row and its potential implications

• Timeline: Labour's secret donor row

Multimedia

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• Pictures: Labour funding row - key players

Background

• A walking paradox who gave £600,000

• Brown is made to play the fool in stage farce

• Jack Dromey declares he is victim of concealment

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• Labour donor unlikely to get his money back

The bulk of Labour’s grant was paid in April 2001, the remainder being paid in 2002. In January 2003 Labour registered the first donation of £25,000 from Janet Dunn, wife of a business associate of David Abrahams.

This was the first of 19 disguised gifts made in the names of four intermediaries including his solicitor, John McCarthy, over a four-year period that totalled more than £600,000.

There have been claims that Labour officials helped to set up the arrangement that included the use of legal covenants for Mr Abrahams to gift the donations through intermediaries.

That Labour received substantial public funds to train staff in the new law makes all the more puzzling the insistence by the party’s now-departed general secretary that he thought such an arrangement was legal.

The antisleaze campaigner and former Independent MP Martin Bell told The Times: “The more we know, the worse it gets. It makes you wonder what this money was spent on.”

Peter Watt said when he quit as Labour general secretary last week after admitting he knew of the proxy donations: “I believed at the time my reporting obligations had been appropriately complied with. As a result of press coverage . . . I sought legal advice on behalf of the Labour Party. I was advised that, unbeknown to me, there were additional reporting requirements.” Mr Watt worked for the party when the Act was introduced and was its task-force leader for financial and legal compliance from 2003 and director of finance and compliance in 2005 until he became general secretary last year.

Section 54 of the Act states that if an “agent” is used to give money to a political party the original donor’s identity must be supplied to the party too.

Mr Watt was said yesterday to be ready to fight to clear his name rather than accept the role of fall guy, friends saying he inherited the arrangement when he took over running the party.

Matthew Taylor, who was an adviser to Tony Blair, has accused Gordon Brown of “inept” handling of the row.

Alan Johnson, the Health Secretary, told GMTV: “It’s not a good time for the party . . . particularly as we were the party that set out to regulate this.”

What each party got

Labour Party £183,052
Conservatives £183,052
Liberal Democrats £136,840
SNP £21,991
UKIP £17,579
Greens £16,821
Ulster Unionists £11,062
Plaid Cymru £10,968
SDLP £10,439
Democratic Unionists £8,578
Sinn Fein £7,087
Alliance Party (NI) £3,255
Scottish Socialists £2,992

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