How did this controversy come about?

Peter Hain launched his ill-fated campaign for the Labour Party deputy leadership on September 12, 2006. He was eventually defeated in the second round, having come in fifth place overall.

On November 27 last year – in the midst of another Labour funding scandal – Mr Hain admitted he failed to register a £5,000 donation to his campaign by the party’s chief fundraiser Jon Mendelsohn. He blamed the failure on an "administrative error".

On December 3, Mr Hain made a further announcement saying that other donations "were not registered as they should have been". He said he had informed the Electoral Commission and would be reviewing all donations to his campaign and preparing a full declaration.

Yesterday, he reported this figure as a total of £103,156.75 of unregistered donations. The Commission, along with the Parliamentary sleaze watchdog will now conduct investigations into the situation.

What does the new inquiry mean for Peter Hain?

The fresh investigation will be into whether he complied with the rules of the Commons, rather than electoral law. It will be the first high profile inquiry by Mr Lyon, who became the new Parliamentary Commissioner for Standards this month.

It spells trouble for Mr Hain on two fronts. First, it is likely to drag out the controversy over a longer timescale. More bad publicity from Mr Hain is an irritant to Gordon Brown as he tries to refocus public attention on the Government’s policy agenda.

Second, the inquiry could - depending on the outcome - result in a different set of sanctions imposed by the Commons that could prove more perilous to Mr Hain.

What happens now?

The new commissioner will conduct an investigation seeking details from Mr Hain over the financing of his campaign to be Labour’s deputy leader. The key aspect will be the dates. Under Commons rules, Mr Hain should have declared in the Register of Member’s Interests donations made to his campaign within four weeks of receiving them. His statement last night said he became aware of unregistered donations on November 29. Yet, the latest edition of the Commons register, published on January 9, makes no mention of the 17 additional donations amounting to £103,000.

Once Mr Lyon has assembled the facts, he will write a report with recommendations on what steps to take which is submitted to Commons Standards and Privileges Committee. It is MPs on this committee who ultimately will decide Mr Hain’s fate.

How serious is this for him?

If he has a good explanation as to why the donations were not registered, it may not prove serious. But if major errors are exposed or he is accused of flouting Commons rules, things could get very tricky for Mr Hain.

Should he be found at fault - and he appears to be in clear breach of the four week deadline to register financial interests - the lowest sanction tends to be an instruction to apologise to the Commons. This would be humiliating for a Cabinet Minister but not necessarily fatal.

However, tough sanctions involve a suspension from attending the Commons, for periods that can range from a day to a month. If Mr Hain were suspended from the House, even for a day, his resignation as Work and Pensions Secretary would be inevitable as opponents would argue he would be unable to fulfil his duties as a minister.

The committee has a Labour majority but is chaired by a Tory MP, Sir George Young, and due to its quasi-judicial nature its members are expected to set aside party allegiances when considering comlains against fellow MPs.

What about the other inquiry he faces?

The Electoral Commission, the watchdog body for elections and political donations, is also investigating Mr Hain’s admission that he failed to declare more than half of the donations to his unsuccessful campaign. Again he appears to be in clear breach of the reporting rules under electoral law, under which he had 30 days to decided whether to accept donations and another 30 days to declare them to the Electoral Commission.

But the potential outcome of this inquiry may be less damaging. Electoral Commission officials are unclear on the relevant sanctions, suggesting they have powers to fine a political party simply for late reporting of donations but not an individual politician like Mr Hain. They emphasise that the commission has been lobbying for tougher powers in this area.

So, provided Mr Hain can prove that any failures to comply with electoral law were genuine errors and not an attempt at concealment, he may escape with no more than bad publicity. The fact that he voluntarily revealed the existence of unregistered donations and took the initiative to approach the commission should help him in this regard.

How could he suddenly realise people gave his campaign £100,000 more than he thought?

Mr Hain’s explanation is that after the deputy leadership election in June - in which he came fifth, despite out-spending his rivals - his campaign faced unpaid bills from his campaign well into he summer and autumn. As a result the fund-raising efforts continued to cover these costs.

However, the day on which he says he discovered the existence of undeclared donations - November 29 - was towards the end of the week that Labour’s fundraising scandal broke, with news that property developer David Abrahams used intermediaries to make secret donations of £600,000 to the party.

Last night Mr Hain admitted that his campaign used a similar device to accept donations through an intermediary: an obscure think-tank called Progressive Policies Forum. Six of these donations to this think-tank amounting to £51,613.75, including an interest free loan, were from money previously donated to the think-tank and were, with their permission, given to the campaign, he said. Some may suspect that Mr Hain came forward after realising he might be implicated for using a funding device similar in principle to that used by Mr Abrahams.

Will Gordon Brown stand by Mr Hain?

This morning Downing Street said the Prime Minister has full confidence in Mr Hain but this means little. There are only two sorts of confidence a premier has in his ministers: full or none.

In the longer term, Mr Hain’s career in Government looks over. But in the short term one glimmer of light is that his argument, that he left details of running and funding his campaign to others, is exactly that used by Mr Brown to explain Labour’s own funding scandal. If Mr Brown fired him now, he might damage his own position when the police inquiry into the David Abrahams donations comes to a conclusion.

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