LABOUR wants taxpayers to plug a gaping hole in the party’s finances caused by a collapse in donations after the cash-for-peerages allegations.

Hazel Blears, the party chairman, told The Times yesterday that Labour, as the party of government, should get more public money to support political work.

The proposals will prompt accusations that the voters are being asked to bail out political parties after the police investigation into allegations that peerages were offered in return for secret loans.

Ms Blears’s proposals were put forward as police interviewed a man under caution as part of inquiries into a prominent Labour lender.

The man, thought to be a Labour official, was being questioned over e-mails that mention Sir Christopher Evans, the biotechnology entrepreneur who lent Labour £1 million last year.

The investigation is continuing apace after disclosures in The Times that Sir Christopher had been arrested.

Ms Blears’s proposed rule change would give Labour MPs and ministers access to public funds to support parliamentary activities. The funds were introduced in 1975 to support the work of opposition parties in Parliament but were increased threefold by Labour after it took office in 1997.

Ms Blears is pressing for the funds to be extended to the governing party, even though ministers can already call on civil servants and special advisers for advice and support.

She also wants all parties to receive funds to support political work to engage with disillusioned voters in the community. Her proposals, to be put to the Labour conference next week after approval from its National Executive Committee, will be submitted to the review of party funding being conducted by Sir Hayden Phillips. Sir Hayden, who was appointed by Tony Blair, called yesterday for tougher powers for the Electoral Commission, which oversees party finances.

He claimed that a more “proactive” and “nimble” commission with powers to intervene earlier might have prevented the loans issue escalating into a political controversy.

Sir Hayden said that he understood that the commission had got wind of the parties’ decision to accept large loans — which, unlike donations, did not have to be declared — before last May’s election, but was unable to take action.

Ms Blears also urged ministers, MPs and party members not to be distracted from the task of finding modern solutions to new policy challenges.

Times Recommends

• Time-worn Freddie gives up Test matches
• Brighton company 'involved in cyber attack'
• The art of survival: it’s all in the mind