Scotland Yard announced tonight that it was investigating the Labour Party for possible abuse of a 1925 law prohibiting the sale of political honours arising from the cash-for-peerages row.
The Metropolitan Police said that it had received three complaints about Labour under the Honours (Prevention of Abuses) Act 1925. "These allegations are being investigated by the Specialist Crime Directorate," it said.
Labour yesterday released the names of 12 businessmen who made undisclosed loans to the party to finance its last general election campaign. Four of them were later nominated for peerages, but blocked by the Lords Appointments Commission.
The 1925 Act, brought in after the original "cash for peerages" scandal of 1922 when Lloyd George, the then Prime Minister, was shown to have been selling knighthoods and seats in the Lords.
The Act states: "Any person who accepts or agrees to accept or attempts to obtain from any person for himself or another the grant of a dignity or title of honour is guilty of a misdemeanour, and liable on conviction to imprisonment for two years or a fine of £500 or both."
A Scottish National Party MP, Angus MacNeil, complained to the Metropolitan Police Commissioner Sir Ian Blair and to the Director of Public Prosecutions last week as revelations emerged of the first three undisclosed loans was revealed.
The Scotland Yard probe comes as a further embarrassment to Tony Blair after revelations that he ran a parallel fundraising operation through his close aide Lord Levy that raised £14 million without the knowledge of Jack Dromey, the party treasurer.
Earlier today, Labour’s ruling National Executive Committee announced that it was seizing back control of party finances and fundraising from Downing Street in an attempt to contain the damage.
After a three-hour meeting at No 10 attended by Mr Blair, members of the committee issued a short statement of recommendations, saying that it would "resume its rightful responsibility for oversight of all matters of party funding and financing". It also said that all future commercial loans and their sources - which until now have not had to be made public - would be declared.
The NEC also said that it would authorise a review of the damaging events of the past days which led last night to Labour releasing the names of its "rich list" of supporters. The review will run parallel to a investigation by Sir Hayden Phillips, a former Whitehall mandarin, which was ordered yesterday and could lead to the introduction of state funding for political campaigns.
Sir Jeremy Beecham, the NEC chairman, said that today's recommendations had been unanimously approved followed a "friendly and excellent discussion". Tony Blair left the meeting without making any comment after around 90 minutes.
Sir Jeremy later denied that the Prime Minister had come under fire for signing off the loans without the knowledge of senior figures within the party, including the party treasurer, Jack Dromey. Sir Jeremy described this, diplomatically, as the result of "gaps in communication".
"There were not any harsh words at all, it was a very constructive debate," he said. "Everybody was concerned to move on. We recognise that there has been a problem, we are dealing with the problem and we want to move on."
Sir Jeremy's delicacy contrasted with blunt comments from Charles Clarke, the Home Secretary, who questioned Mr Dromey's command of the party's finances. Mr Clarke told journalists at a lunch in Westminster that Mr Dromey's lack of awareness of the loans meant "you have to wonder how well he was doing his work".
He said that any competent treasurer, even honorary ones, looked at the finances of organisations in which they were involved.
Sir Jeremy later rejected Mr Clarke's criticisms, saying: "No member of the NEC questioned the capacity of any NEC officer to carry out their duties. Jack Dromey has always carried out his responsibilities with great diligence and retains the absolute confidence of the NEC in ensuring that this issue is dealt with."
Today's developments came after Dr Chai Patel, the Labour donor whose complaint that he had been blocked from receiving a peerage opened the Pandora's Box of party financing, alleged that he had been asked to give Labour a secret loan, rather than a donation.
Dr Patel said that it was only later that he discovered the request, made by Lord Levy, was because commercial loans do not have to be disclosed.
Dr Patel's account mirrors that of Sir Gulam Noon, the "curry king", whose nomination to the Lords has been blocked after it was discovered that a loan he made to Labour had not been disclosed. Sir Gulam said today that he has now asked for his name to be withdrawn from the list of nominations for working peers.
Dr Patel, founder of the Priory clinics, said he was upset by the suggestion of a link between loans and peerages. He said people had ignored his record of public service.
He added: "I feel very hurt. Where I have arrived is somewhere I wanted to be, which is to serve in public life. I see the second chamber as a legislative chamber, as a very serious place to be an unelected legislature.
"I believe I could have made a difference. I happen to voluntarily contribute some of the money I have towards a party I believe in."
"Instead of having any acknowledgement for that, I have been dragged down into a two-dimensional person where I’ve somehow got money and I want to buy myself a bauble. That doesn’t seem like a fair way to be treated."
The Conservatives have said that they are not prepared to reveal the identities of the wealthy supporters who lent them up to £20 million to fight their election campaign "under any circumstances".
Today, the Electoral Commission wrote to the registered treasurers of the main political parties, asking them to ensure they are entirely satisfied any loans their party has received and not so far reported are on fully commercial terms.
Previous guidance from the Commission states that political parties should record details of any loans where the interest rate is more favourable than would be obtainable from commercial sources.
