LABOUR is to oppose plans to cap donations from its wealthiest backers, according to internal documents.

A briefing note distributed to MPs last week firmly rejected Conservative proposals to cap political donations at £50,000 and launched an attack on the Conservatives’ secretive fund-raising operations.

The documents, drawn up by Hazel Blears, the Labour party chairman, and Jack Straw, leader of the House of Commons, include the submission to the independent report into party funding being conducted by Sir Hayden Phillips.

Senior Labour party officials are keen to highlight the Conservatives’ fundraising tactics after criticism from party members over the cash for honours scandal.

The documents refer to the Midlands Industrial Council, a group of business leaders who gave almost £1m to the Tories between April 2003 and March 2006.

The group recently revealed its list of 22 members, which includes some of the country’s richest people, including Tony Gallagher, the property tycoon, and Sir Anthony Bamford of the JCB empire. “The funding of the Tory party continues to be shrouded in secrecy,” state the documents.

Phillips’s review of party funding, which is expected to be published next month, was started after Tony Blair admitted that Labour had taken secret loans from businessmen, four of whom were later nominated for peerages.

Senior Labour party figures say that any move to cap donations would have a severe impact on party finances. Labour would stand to lose nearly £9m in trade union funding, in addition to large donations from wealthy backers.

John Yates, the detective who is leading the cash for honours inquiry, wrote to MPs last week stating that there had been “major developments” in the case. He said his team continued to focus on any breaches of the 1925 Honours Act or breaches of electoral law.

One of the key areas of investigation is whether the loans should have been declared to the Electoral Commission. A failure to declare donations or non-commercial loans to the commission is a criminal offence.

Officers are investigating whether the loans were commercial or not. Labour officials have insisted that they were because the interest was above bank base rate. Financial experts point out that the loans were unsecured and were unlikely to have been available from banks.

According to the Electoral Commission, the “overall test” of whether or not the loans were commercial is whether they could have been obtained elsewhere.

A senior Blair aide said this weekend that the prime minister was not unduly concerned by the inquiry.

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