THE Conservative Party is concealing a £2 million loan behind an offshore trust set up a week before the 2005 general election to fund a last-minute advertising offensive.

The Times has learnt that the identity of the businessman behind Morain Investments, which is based in Jersey, is known to at least two senior Tories. The party agreed to let the mystery backer take a charge against Conservative Central Office as security for the loan.

The trust was set up on April 28 last year, and helped Michael Howard, the Tory leader, to raise spending on the campaign to £18 million, saddling David Cameron with debts of more than £20 million.

Central Office is to be sold to try to repay the £20 million in loans from a dozen supporters. The building, in Smith Square, is worth more than £10 million.

Morain Investments was set up to provide maximum secrecy. The only directors listed give their occupations as trust company directors who have no connection to the Tory party.

Parties can legally take money from companies in the Channel Islands only if they can prove that they are “carrying on business” in Britain.

A further £2 million loan was given to the party before polling day by the bank Arbuthnot Latham & Co, whose chairman and majority shareholder is the Tory supporter Henry Angest. In the Conservative leadership contest last year, Mr Angest, 65, backed David Davis with a £50,000 donation. The Tory leadership declined to be drawn on the identity of the Channel Islands backer as the loan was negotiated before the latest furore on party funding.Jonathan Marland, the treasurer, and Francis Maude, the party chairman, know who is behind the trust. It was not clear last night whether Mr Cameron had been informed.

Mike Warburton, a tax partner at the accountants Grant Thornton, said: “It is common practice in offshore trusts for local business people to double as trust directors. One of the advantages of offshore structures is that they create anonymity as you do not have the same disclosure requirements.”

Lord Oakeshott of Seagrove Bay, the Liberal Democrat Treasury spokesman, said last night: “This arrangement was clearly set up to conceal the identity of the lender. How will the Electoral Commission be able to check whether Conservative Central Office is telling the truth when it claims the loans are on commercial terms? The fact is that loans are just donations in dark glasses. The technique was dreamt up in the dirty tricks department of Conservative Central Office.”

John Hutton, the Work and Pensions Secretary, said that the Tories must now match Labour and disclose the identities of all their lenders. The issue threatens to split the Conservatives as Dominic Grieve, the Shadow Attorney-General, has broken rank and called for all the party’s lenders of the £20 million to be named.

They include Lord Ashcroft, the deputy chairman of the party and former treasurer, who has lent £3.5 million, the businessman Lord Laidlaw of Rothiemay, whose loan is of about £2 million, and Robert Edmiston, the car importer, whose nomination has been blocked by the House of Lords Appointments Commission.

The Conservative Party, unlike Labour, disclosed the details of his loan to the commission, which blocked the peerage for a different reason.

• Tony Blair will be at the athletic finals at the Commonwealth Games today. He will be out of the country for more than a week, visiting Australia, New Zealand and Indonesia.

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