TONY BLAIR has been accused of misleading Labour’s ruling body after claiming he took secret loans because “potential donors” wanted to keep their identities hidden.

The Sunday Times has obtained a written record of Blair’s justification for the secret loans scheme — used to fund last year’s election — at a key meeting of Labour’s national executive committee (NEC) earlier this year.

Blair defended the secrecy by claiming that anyone giving money to Labour in the run-up to the last general election would be “trashed in the media and so potential donors preferred the confidentiality of a loan”.

However, his statement is at odds with new evidence given to the police as part of their investigation into the cash for honours scandal.

At least two businessmen at the centre of the inquiry are understood to have told detectives they were happy to give public donations but were told by a top Blair aide to lend the money instead.

Dr Chai Patel, a businessman, has told police that he initially offered £1.5m as a donation. He was then telephoned “within days” by Lord Levy, Blair’s chief fundraiser, and told the party would like the money as a “loan”. He was later nominated for a peerage.

Sir Gulam Noon, who lent Labour £250,000, said he also offered a donation but was told Labour wanted a loan. He too was subsequently nominated for a peerage. “My position is that I was very happy to contribute as a donation but that I was asked to give a loan,” Noon said this weekend.

One well-placed source close to the scandal accused Blair of misleading the party’s ruling body and the public. “No major business, never mind a country, could possibly have a chief executive behaving in this way,” he said. “The net is closing in on Blair and No 10 is beginning to panic.”

The evidence provided by the backers will spark accusations that Blair’s loan scheme was specifically designed to hide the identity of donors in defiance of laws his government introduced to make party funding more transparent.

Another source close to Blair said: “There was no police investigation at the time but he will regret saying that now. With hindsight, it was a stupid thing to admit [that loans were used to protect confidentiality].”

Patel’s and Noon’s accounts suggest that Labour — and not the businessmen as Blair claimed — wanted the donations kept quiet either because of potential embarrassment over the source of the funding or because the potential donors were being lined up for peerages.

Under electoral laws introduced in 2001, political parties are required to declare all sources of financial backing apart from commercial loans. Accepting “soft loans” — those not on commercial terms — from supporters seeking to hide their identities would be illegal.

Blair will come under pressure to explain his role in the cash for honours scandal when, as is expected later this month, he is quizzed by police, possibly under caution.

It follows the disclosure earlier this year in The Sunday Times that four businessmen who had secretly lent money to Labour — including Patel and Noon — had been offered peerages. The peerages were blocked by a parliamentary watchdog.

At the meeting of March 21, recorded by Ann Black, an NEC member, Blair said he took “full responsibility for everything done in the name of the party”.

According to the record, he tried to justify the loans scheme by claiming the party had to be rescued from a cash crisis in the run-up to the election. “The context was very different a year ago when the overriding need was money to match the millions that the Tories were pouring into marginal seats. Even in 1997 they outspent us,” says the account of the meeting.

“Anyone giving to Labour was trashed in the media and so potential donors preferred the confidentiality of a loan, though he [Blair] did not explain why some donors claimed that the party proposed the arrangement, nor acknowledge that the lenders suffered far more through the facts emerging in this way.”

Blair also warned the next election would cost more than five times as much the previous one.

A Labour source last night insisted Blair preferred donations but acknowledged some donors were attracted to the confientiality of loans.

It has also emerged that Patricia Hewitt, the health secretary, wrote to Noon last year asking him to make a separate personal donation to her constituency. She is alleged to have been involved in nominating the businessman for a peerage. Hewitt is expected to be the next minister interviewed by police.

Gordon Brown, the chancellor, has so far managed to distance himself from the scandal. Police have written to him asking if he was aware of the loans. He insists he was not.

However, a source said: “Brown must have been aware, he was running the election campaign. Is he really trying to suggest that despite keeping a daily eye on every penny spent by the entire government, he had no idea how we were paying for the election?”

The source said Blair and Levy had been introduced to at least one lender, Nigel Morris, via Treasury contacts. Morris, who founded a credit card company, lent Labour £1m after being introduced to Blair at a private party thrown by Sir Ronald Cohen, a close confidant of Brown. Morris was understood to be advising the Treasury informally at the time.

Explore UK News

• Crime News

• Education News

• Health News

• Science News

• Scotland News

Times Recommends

• An officer and a gentle woman
• Dame Helen Mirren is worthy of the Epidaurus
• Foods that can help to prevent swine flu