Hain's resignations letter | Video: the resignation

The shadow of Labour’s funding scandals threatens to hang over Gordon Brown for years after police launched an investigation into Peter Hain hours after he quit the Cabinet.

The Work and Pensions Secretary offered his resignation, and Mr Brown took it without question, after the Electoral Commission referred to the police his late declaration of £103,000 in donations to his deputy leadership campaign.

It was yet another blow to Mr Brown after a string of troubles ranging from lost computer discs to Northern Rock.

Mr Hain’s fate intensified the discomfort surrounding other Labour figures, including Harriet Harman and Wendy Alexander, involved in Electoral Commission, parliamentary or police investigations.

It appears that Mr Brown may be unable to escape the cloud of police inquiries into Mr Hain and the proxy donations of £600,000 to Labour from David Abrahams until 2009, possibly election year.

Mr Hain said he was going because he wanted to clear his name but in passing his file on to Scotland Yard the commission was effectively passing a Cabinet death sentence on him. The Prime Minister had backed him to that point but swiftly agreed with Mr Hain yesterday that he could not go on. Both appear to have decided some time ago that a referral to the police would be the last straw.

Mr Brown had been desperate to avoid an early Cabinet reshuffle as he tried to draw a contrast between his administration and the regular shake-ups of the Blair years. But Mr Hain’s departure made changes unavoidable.

There were advances for four young ministers. James Purnell was appointed to Mr Hain’s job; Andy Burnham moved from Chief Secretary to the Treasury to Mr Purnell’s job as Culture Secretary; Yvette Cooper moved into the Cabinet as Chief Secretary from Housing Minister; and Caroline Flint replaced Ms Cooper.

Paul Murphy returns to the Cabinet to take Mr Hain’s other job of Welsh Secretary.

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