A PROPERTY developer who made a secret loan of up to £2 million to the Labour Party has withdrawn his name from the list of nominations for a life peerage.

Sir David Garrard, 67, is the second donor to abandon his nomination after being blocked by the House of Lords Appointments Commission.

He also donated £2.4 million to one of Tony Blair’s city academies and there was immediate speculation in Westminster last night that he will be on the Prime Minister’s resignation honours list when he leaves Downing Street. The departure of Sir David has inflicted further embarrassment on the Labour leadership, which, the The Times disclosed last week, had omitted to tell the Appointments Commission that three nominees, Sir David; Chai Patel, the founder of the Priory Clinic; and Barry Townsley, a financier, had all made loan deals of more than £1 million.

The commission has a duty to investigate all financial links between nominees and the party they will represent in the House of Lords but because the loans involve an undeclared rate of interest they are regarded as commercial transactions and do not have to be disclosed.

Lord Levy, the Prime Minister’s fundraiser, persuaded the three nominees to make loans rather than donations in the belief that their financial support would not become public. Sir David is a friend of Lord Levy, whose wife, Gilda, runs a charity from Minerva, the London-based property company that he used to chair.

As recently as 2003, however, Sir David was regarded as a devotee of the Conservative Party cause. He attended a fundraising breakfast shortly after Michael Howard became leader in November 2003 and paid £70,000 for a call centre at Conservative Central Office. The party was so grateful that it put up a plaque in his honour at Central Office. In the same year he was knighted for services to charity and made a £200,000 donation to Labour.

In a statement released yesterday, Sir David said that he was told that his nomination was for his work in child welfare, education, and his support for the city academy programme. He made the £2 million loan before the last election. The statement said: “Sir David has written to the Prime Minister asking for his name to be removed from the list of nominees for peerage.”

Sir David, who lives some of the year in a suite in the Mandarin Oriental hotel in Geneva, was disappointed that the Appointments Commission had not asked for clarification of any issues that could have been under investigation “despite offers to address any issues”.

The funding row took a new twist last night when Jack Dromey, the Labour treasurer, denied all knowledge of the loans, which were negotiated by Lord Levy. Mr Dromey announced an internal inquiry into the loans. Labour sources said last night that they believed that Downing Street, Ian McCartney, the party chairman, and Matt Carter, the former general secretary, knew about the loans but the rest of the NEC had not been told.

The issue was raised at Prime Minister’s Questions yesterday by the Conservative MP Quentin Davies, who said: “Do you share my sense of revulsion that this is the only country in the world calling itself a democracy where it appears that you can buy your way into the legislature by simply giving a lot of money to one of the three major parties? Isn’t it time that we brought this squalid system and all suspicion of it definitively to an end?” Mr Blair said: “It is important of course. No doubt this will be debated in the context of House of Lords reform.”

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