TONY BLAIR’S chief fundraiser told MPs yesterday that a dramatic increase in state funding for political parties was the answer to growing public suspicion of big individual donations.

Lord Levy, the Prime Minister’s tennis partner, is understood to have told MPs that he had been converted to the idea of state funding after the controversy surrounding his cash-raising exploits.

The 61-year-old peer is thought likely to be questioned by police investigating allegations, which he strongly denies, that Labour donors were offered peerages or other honours for loans or donations.

His support for state funding after helping to raise millions of pounds for Labour from wealthy individuals was echoed yesterday by his Conservative and Liberal Democrat rivals.

Lord Marland, the Conservative treasurer, and Lord Razzall, chairman of the Lib Dem election campaign, are understood to have made similar calls for more taxpayer funding at a private session of the Constitutional Affairs Committee yesterday.

The party officials also backed the introduction of strict limits on individual donations, according to sources close to the committee.

None would comment after the meeting, which was held in camera because of the continuing police inquiry into “cash-for-peerages” allegations surrounding the £14 million in secret loans to Labour last year.

Liberal Democrat and Conservative policy is for individual donation limits of £50,000 while Labour remains cautious of a subject that could threaten its historic financial links with trade unions.

Jack Straw, the leader of the Commons, will give evidence to the committee in public next month and is set to call for annual spending limits for parties. Labour is consulting its members on limits for individuals in such a way that would preserve union donations.

The results of its consultation, together with the report from MPs on the committee, will feed into a report on party funding by Sir Hayden Phillips, a former Whitehall mandarin.

Scotland Yard wanted yesterday’s session postponed, saying that any public airing of evidence by Lord Levy could hamper their inquiries. He was one of only three people who knew about the loans, with Tony Blair and Matt Carter, then the Labour general secretary.

Four of the 12 secret lenders were nominated for peerages. The party did not inform the Lords Appointments Commission that the four — Barry Townsley, Sir David Garrard, Chai Patel and Sir Gulam Noon — had made large loans.

The police are investigating whether this breached the Honours (Prevention of Abuses) Act 1925. The case could turn on whether the loans were at a commercial rate and whether there was an explicit understanding that the loans would lead to honours.

A source close to Lord Levy said that the peer, nicknamed Lord Cashpoint for his ability to raise funds, said that he had been “converted” to the idea of state funding. The source also confirmed that he intended to step down as chief fundraiser at the same time as Mr Blair steps down as Prime Minister.

Asked before the hearing if he expected to be interviewed by police, Lord Razzall said: “No I don’t.” Lord Marland added: “I have not spoken to the police at all.” Lord Levy declined to comment.

YOUR MONEY

Short money Provided to opposition parties with two or more MPs, or one MP and more than 150,000 votes, to help in Commons duties. In 2005-06, the Conservatives received more than £4 million, the Lib Dems £1.5 million

Cranborne money For opposition parties in the Lords. Conservatives received £425,000, the Lib Dems £210,000 and crossbenchers £38,000

Policy development grants Enables parties to develop long-term policies. The Conservatives, Labour and Lib Dems receive £458,000 each. Northern Ireland parties receive £155,000 each, the Scottish National Party £162,000 and Plaid Cymru £151,000

Indirect state funding Party Political Broadcasts (valued at about £68 million in an election year), freepost at elections (worth about £20 million)

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