A CHARITY that has had more than £840,000 of loans quietly written off by a government fund has made two unlawful donations to the Labour party.

Catz Club, which runs after-school clubs for children, paid £30,000 to attend two Labour fundraising events at Wembley stadium. Charity law bans the use of charitable funds to bank-roll political parties.

Labour’s lax checks on donations were exposed in November 2007 by the David Abrahams scandal in which a series of gifts were made through proxy donors.

The party now faces scrutiny over the failure to check the legality of the Catz Club donations.

“Taxpayers’ money has been recycled into the coffers of the Labour party through a children’s charity,” said Nick Hurd, shadow charities minister. “It is very disappointing that the truth is having to be dragged out of the charity and the government bit by bit.”

Labour has already returned £15,000 to the charity. It said this weekend that it was “in the process” of returning the rest of the charity cash.

Catz Club , which has received £200,000 of lottery funding and a £1.3m loan from a Cabinet Office fund, first handed Labour £15,000 in the summer of 2007 for a “platinum” table at the Wembley function. A large chunk of its government loan was written off in March 2008.

Last year it again paid Labour £15,000 for the party’s sports dinner at Wembley. The charity has told the Charity Commission that it paid to attend the event to “lobby” politicians for funding for after-school childcare facilities. Out of total payments of £30,000, only £7,500 was declared by Labour as a donation.

One of the former trustees of the charity is Margaret McDonagh, a former general secretary of the Labour party, who stepped down from Catz Club in April 2006. Amanda Delew, who helped Lord Levy to raise funds for Labour, worked as a consultant for the charity until May last year. Neither was involved in the Labour donations or in the government loans.

The Charity Commission has now launched an investigation into the charity. It has already published a critical report on the second dinner in 2008. But it discovered only recently that the other dinner donation had been made in 2007. Both Catz Club and the Labour party had failed to disclose the payment.

Catz Club, which operates as Schoolfriendetc, was registered with the Charity Commission in 2004 and runs about 100 breakfast, after-school and holiday clubs catering for about 25,000 children.

While the charity has won plaudits for its childcare provision, its finances have been precarious. It has relied on the generosity of Tony Mitchell, its chairman, who is based in Florida and had outstanding loans to the charity of £13.1m in the year to September 2007.

At the Wembley event in 2007, Mitchell chatted with Ed Balls, the children’s secretary. He said Catz Club paid £15,000 for just three people to attend the function.

None of this money was publicly declared by the Labour party as a donation. Party officials now say they considered only £5,000 as a gift from the charity — which is below the £5,001 threshold at which a donation must be declared.

“It sounds to me as if the numbers have been manipulated to minimise the amounts declared to the Electoral Commission,” said Hurd.

“Most people in the real world could not imagine spending [£15,000] on a dinner, particularly if you are executives of a children’s charity. This whole affair stinks.”

Catz Club considered the donation well spent. Last summer it again paid £15,000 to attend the Labour sports dinner at Wembley. Diners could bid to play tennis with Tony Blair or have lunch with Sir Alex Ferguson, the Manchester United manager. This time Labour declared £7,500 as the portion of the payment which it considered a political donation.

The gift was spotted by Greg Clark, then the Conservative shadow charities minister, and the Charity Commission launched an investigation. It concluded the donation was unlawful and Labour returned the money.

Labour said it has complied with the law. However, it failed to warn Catz Club that the charity was making unlawful donations. It also treated the bulk of the money as payments for the “cost of the event and the commercial benefits received by the buyer”, which meant most of the money did not have to be disclosed to the Electoral Commission as donations.

The dealings between Labour and the charity have put the spotlight on the loans that were written off by Futurebuilders, a government fund which is overseen by the Cabinet Office.

Futurebuilders confirmed in September last year that it had lent money to the charity but declined to say how much had been written off, citing client confidentiality. Under pressure from the Conservative party and investigations by Third Sector magazine, which covers the charitable sector, it was subsequently admitted that more than £560,000 was written off.

The Cabinet Office now says the true figure is higher. In a parliamentary answer last month, Kevin Brennan, a junior minister, said that the “total funding written off by [Futurebuilders] in relation to the charity Catz Club is £841,979”.

Futurebuilders said its remit is to invest in ventures even where there is a risk that funds might be written off. Both the fund and the Cabinet Office insist ministers are not involved in these decisions.

Jonathan Lewis, chief executive of Futurebuilders, said it was “totally independent” and that ministers and officials had “no possible influence” on its investment decisions.

Mitchell said this weekend there had been no attempt to conceal information and the donations were made in error.

Additional reporting: Jack Grimston

It all adds up

¤ In January 1997 Bernie Ecclestone, the Formula One tycoon, donated £1m to the Labour party. The government temporarily exempted F 1 from a proposed ban on tobacco sponsorship.The donation was later returned.

¤ In November 2007 it was revealed David Abrahams, a property developer, had donated more than £660,000 to Labour via proxy donors, in breach of electoral law.

¤ In January last year Peter Hain resigned from the cabinet after failing properly to declare more than £100,000 in donations for Labour’s deputy leader race. Hain said the donations were declared late because of a mistake.

¤ In November last year Jack Straw was revealed to have failed to declare a £3,000 donation in 2004 made by an energy company that wanted to build a gas storage facility near his constituency. The gift has now been declared.

Bid to open up lobby deals

Ministers and civil servants should disclose all their dealings with lobbyists, under recommendations to be announced tomorrow by an influential committee of MPs.

The Commons public administration select committee is also expected to call for lobbying firms to reveal their clients and employees on a mandatory public register.

The committee’s report, which follows an 18-month investigation triggered by a string of scandals, is also likely to challenge the “revolving door” between senior civil servants and MPs and the influence-peddling industry.

Many former ministers are employed by companies with interests in their area of expertise. For example, Patricia Hewitt, the former health secretary, works for Boots and Cinven, a medical private equity company.

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