DOWNING STREET must radically alter the way it handles peerage applications to stop any appearance of impropriety, MPs will say tomorrow.

The Public Administration Committee is expected to recommend that proper procedures should be introduced to govern who can handle nomination forms for members of the House of Lords.

Lord Levy, Labour’s chief fundraiser, told Sir Gulam Noon that he need not tell a Lords vetting committee about his loan to the party. Sir Gulam lent £250,000 to Labour before last year’s general election, and was nominated for a peerage.

Questions have been raised over how Lord Levy discovered that Sir Gulam’s Lords nomination form contained details of the loan. The entrepreneur received the application on October 4, and gave them to his accountant, who filled them in. He included details of the £250,000 loan, along with the £220,000 of direct donations he had made since 2000.

His completed forms were sent to Richard Rosco, a civil servant at No 10, for forwarding to the Lords Appointments Commission. But on October 5, Sir Gulam and Lord Levy had a telephone conversation, during which the businessman was told that he need not have disclosed details about the loan.

A committee source said: “The question is, who is responsible for delivering the information. There was confusion about who knew what and who is going to send forms off.”

Lord Levy has come in for criticism over his behaviour. The Liberal Democrat peer Lord Goodhart told the BBC that his actions had “disasterous consequences”.

“I don’t think he [Levy] acted illegally but he acted in a way which has had disastrous consequences for Gulam Noon. I feel extremely sorry for him because had he filled in the form as he originally wanted to and disclosed the loan, then I think in all probability the Committee . . .would have accepted him.”

Lord Soley, a former chairman of the Parliamentary Labour Party described Lord Levy’s advice to Sir Gulam as “crazy”. “It was bound to come out and, in fact, there’s nothing wrong with it,” he said. “It smells, but at the end of the day that loan would have to come out because it has to be declared”.

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