THE Electoral Commission announced an investigation last night into the principle of parties using secret multimillion-pound loans from rich benefactors to bankroll election campaigns.

The commission acted after learning from The Times that a number of £1 million-plus loans have been secured by Tory treasurers to bolster the party’s £16 million fighting fund.

In 2000, Parliament legislated to ensure that the identities of all donors who give £5,000 or more are published, to counter sleaze allegations about party political funding.

But the identity of the Tory lenders can remain secret because they have charged an interest rate that is higher than the base rate but lower than those available from the banks.

It means that the Conservative Party will not be required under the transparency rules on party political funding to disclose the lenders’ names.

Sam Younger, the commission’s chairman, said: “The law does not currently require a loan made to a political party on commercial terms to be declared as a donation.

“However, given that the thrust of the legislation is to provide transparency, we will be reviewing this as part of our statutory report after the election.”

Critics of the loans fear that they give the lenders undue potential influence as they can be recalled at short notice.

Jonathan Marland, the Tory treasurer, said: “There is no transparency issue here. All the loans will be converted into donations and then the names of the lenders will be disclosed. We receive more favourable interest rates from our supporters than we would from the banks. It is good commercial practice.”

Asked when the names would come into the public domain, Mr Marland replied: “I cannot say. That is not a matter for me. It is a matter for the lenders when they decide to disclose.”

The major lenders include Lord Laidlaw, one of Scotland’s richest men. The peer, who was ennobled by Mr Howard last year, has already given more than £2 million to the party since the last general election, in addition to a seven-figure loan.

Lord Laidlaw, who has homes in London, Florida and Monaco, contradicted Mr Marland’s assertion that all the loans would be made public. He told The Times: “Mine is a long-term arrangement. I have not made any decision yet as to whether they will have to repay it or make it a donation.

“Sometimes loans get repaid, sometimes they do not. Some are converted into donations. We have some big loans at present.”

Lord Laidlaw, who runs a conference-organising company, the Institute for International Research, whose parent company is in Bermuda, denied that they were in breach of the spirit of the law.

“There is no story here,” he said. “We have been doing this for some time.”

Lord Ashcroft, a multimillionaire businessman and former Tory party treasurer, has lent the party £2 million, of which £500,000 has been repaid. The Tory peer is also separately bankrolling candidates in marginal seats to the extent of a further £2 million.

A spokesman for Lord Ashcroft said: “Lord Ashcroft is known to be lending a substantial amount of money to theparty. He is happy to do so.”

Another £1 million lender is George Magan, who was the Tories’ treasurer briefly under Iain Duncan Smith, and who made an estimated £15 million from his shareholding in Hambro Magan merchant bank. Mr Magan did not return telephone calls.

Lord Steinberg, who was also ennobled by Mr Howard, is another major lender. He built up a chain of 640 shops and 42 casinos.

Stuart Wheeler, the spread-betting magnate who gave the Tories £5 million at the last election, has given £1 million since 2001. “I made a £100,000 donation to the party three weeks ago. I am not as wealthy as I was. I have bought a castle and my share price has taken a bit of a battering.”

Asked if he had made the payment as a loan or donation, Mr Wheeler said: “It is a donation which will be disclosed in the usual way.”

The Tory party has turned increasingly to loans after its fundraising hit the doldrums under Mr Duncan Smith’s leadership. A senior Tory source said: “The loans are entirely legitimate and within the letter of the law, but I concede that we may be criticised for breaching the spirit of the legislation.”

Lord Goodhart, QC, who sat on the committee on Standards in Public Life which investigated party political funding, said: “The loans are an abuse and are in breach of the spirit of the law. I will be recommending to the Committee on Standards in Public Life that we look at this again.”

When William Hague led the Tories into the 2001 election the party had no debts and was bolstered by a £5 million donation from the late Sir Paul Getty and Mr Wheeler.

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