LABOUR is facing a fresh funding inquiry amid claims that the way its trade union backers are collecting millions of pounds for the party is in breach of the law.

The Office of Fair Trading (OFT) is to study a Tory dossier that claims the unions are “ripping off” members by asking for inflated fees that are creamed off into Labour coffers.

If the OFT opens an inquiry it would be the first time it has launched a probe into a political party or its affiliates.

Although union members can opt out of paying a political levy, research by the Tories has found that few organisations advertise the fact.

For example, the Transport and General Workers’ Union, Unity and the general union GMB - all affiliated to Labour - fail to mention on application forms that members can opt out of the political levy and that this would cut their fees.

The Tories claim that this is akin to a shop duping a customer into buying an unwanted warranty and amounts to a breach of consumer protection legislation.

There is already a police investigation into Labour officials after it emerged last month that the party knowingly took donations from the property developer David Abrahams, via proxies, in breach of electoral law.

But the charge that unions have broken consumer protection laws could be easier to prove, resulting in embarrassment for the party and a block on vitally needed funds.

In the past six years the unions have provided an average of £9m a year to Labour in donations, including members’ fees. In 2006 they gave £8.5m, which accounted for 73% of the party’s cash donations.

The official complaint by the Conservatives to the OFT comes amid a bitter row between the main parties over funding.

Following a series of scandals over donations, the government initiated all-party talks headed by the former civil servant, Sir Hayden Phillips. The talks broke down in October but new documents published today show that they failed because Labour refused to give up the millions it gets from the unions.

David Cameron has suggested that individual donations be capped at £50,000 a year, but Labour fears this would mean a block on the huge amounts the unions provide for the party.

Labour officials are also determined to target the millions being spent by Tory former treasurer Lord Ashcroft in key winna-ble seats between elections. But the prompting by the Tories of an OFT investigation opens a new front in the political battle.

In a document produced by Phillips in June for the all-party talks, obtained by The Sunday Times, he appears himself to regard the practices of the unions as suspect. He says that “there is evidence to suggest that some trade union members are contributing to the Labour party who would not do so if they were required to opt in”.

His report pointed out that while only 10% of union members opt out of the political levy, this could rise to about a third if members had to opt in.

Jonathan Djanogly, shadow solicitor general, who sent the dossier to the OFT, said: “The Labour party is cashing in from shoddy fund-raising practices.”

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