Plans for the Rothschild dynasty to hold a fundraising event on behalf of the Conservative Party were put on hold yesterday – another casualty of the family’s spectacular falling-out with George Osborne.

Sources close to the Rothschilds also refused to say whether Nathaniel Rothschild’s mother, Lady Rothschild, would continue to fund the Shadow Chancellor’s office after his “bad behaviour”. This year it emerged that Lady Rothschild secretly gave £190,000 to the Tory party for Mr Osborne’s office.

The family were in discussions to host a fundraiser for the Tory party early next year but the plan is now “up in the air”. “It’s not clear that George would want to hold the fundraiser,” a source close to the Rothschild family suggested.

The wider question of Tory fundraising is likely to come under scrutiny, amid claim and counterclaim over how far the party was willing to go to secure money from a foreign donor.

Donations from people not on the electoral register are banned under legislation passed in 2000. However, companies trading in Britain, including those owned by international businessmen such as Oleg Deripaska, can give money legitimately.

Electoral law bans British organisations being used as a front or “agent” to legitimise donations. In practice it would be virtually impossible to prove that a British company gave money on the orders of an overseas owner.

Sources familiar with the Tory fundraising operation told The Times that the party maintained ties with rich foreign businessmen whose British offshoots donate money – but insisted that they have always been careful to stick to the letter of electoral law.

The Electoral Commission confirmed yesterday that it was investigating the legitimacy of donations to the Tories received through a company belonging to its vice-chairman, Lord Ashcroft. According to the Channel 4 programme Dispatches, Bearwood Corporate Services, a Brit-ish-based company, receives millions of pounds via a string of companies that go back to an anonymous company in Belize. The Tories say that the donations met the legal requirements.

The commission is pressing for new powers to investigate donations.

The Tories’ finances are in a strong position. According to the Electoral Commission’s returns, they raised almost £2 million more than Labour between the start of April and the end of June, receiving £5.6 million compared with £3.8 million.

Labour MPs last night argued that the Shadow Chancellor should have declared the Rothschild family’s donations to his office.

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