THE science minister Lord Sainsbury is facing a Whitehall inquiry after being accused of breaking the ministerial code of conduct by failing to declare a £2m loan to Labour.

The minister admitted this weekend that he had failed to tell his permanent secretary about the loan, despite claiming a fortnight ago that he had done so.

Sainsbury acknowledged that he had misled the public by wrongly announcing last month that the transaction had been reported to his top civil servant “in accordance with the ministerial code”.

A complaint is being lodged with the government’s newly appointed ministerial watchdog by Angus MacNeil, the MP who has prompted a police inquiry into the “loans for peerages” scandal.

MacNeil, a Scottish National party MP, said: “There has been a prima facie breach of the ministerial code of conduct. The whole purpose of this loans scheme was to hide money.”

It will be the first test of the new independent system for scrutinising ministerial conduct set up only weeks ago by Tony Blair after the scandal broke.

MacNeil is writing to Sir John Bourn, who is head of the National Audit Office as well as the new watchdog appointed to advise Blair and his ministers on their private interests.

In his letter MacNeil says: “An urgent investigation is necessary as a minister has failed to disclose an important financial interest which could clearly have a possible bearing on his role in government.”

Last November David Blunkett, the work and pensions minister, was forced to resign after admitting that he had not made the correct Whitehall disclosures over his financial and business interests.

Sainsbury was also criticised by other senior backbench MPs yesterday. Ian Gibson, a Labour former chairman of the Commons science and technology committee, said: “I have never been happy with someone putting money into the Labour party and then being given a ministerial position. The whole system stinks.”

Alan Beith, the Liberal Democrat chairman of the Commons constitutional affairs select committee, said: “I think it is probably in the letter and certainly in the spirit of the ministerial code that such a financial commitment should be declared. The potential conflict is this: the prime minister says ‘I’m going to sack you’. The minister says, ‘I want my money back’.”

The science minister, who has also donated £6.5m to Labour since 2001, gave the loan last April, a month after donating £2m to the party. It is understood that the loan was negotiated by Lord Levy, Blair’s chief fundraiser.

Senior Labour sources say Sainsbury was asked to lend rather than give the additional £2m because the party did not want to be seen as being largely bankrolled by a single individual in the election campaign.

The loan was known to Blair and possibly two other Labour insiders until last month when The Sunday Times contacted Sainsbury. Over the course of three days the minister and his spokesmen repeatedly ducked questions about the loan.

On Sunday March 19, Sainsbury finally issued a statement confirming the £2m loan, adding: “This loan was reported at the time to the acting permanent secretary of the DTI (Department of Trade and Industry) in accordance with the ministerial code.”

However, on Friday, after a meeting with Sir Brian Bender, his permanent secretary, Sainsbury issued another statement to “apologise for unintentionally misleading the public”.

It was slipped out within hours of the Conservatives dominating the headlines when they published their list of financial backers who had secretly loaned the party £16m. Sainsbury blamed the mistake on confusion between himself and his permanent secretary over what had been declared. He insisted that he had not broken the ministerial code.

The mounting pressure on Sainsbury comes as Levy is found to be at the centre of a new “cash for access” row over a proposed £1m donation from two millionaire businessmen. Roy and Donald Richardson, West Midlands developers, said Levy had asked them for a donation of £1m at a meeting in the Lords and hinted he would co-ordinate contact with ministers.

At the meeting, soon after Blair was elected, Roy Richardson, 75, said: “He (Levy) indicated they (Labour) would look favourably at a big donation from us. Lord Levy said at that time any approach to ministers would have to go through him. We didn’t really agree with that.”

However, Labour sources with access to a record of the meeting strongly deny the Richardsons’ version of events. One source said: “These two businessmen approached the Labour party and asked for a meeting. They said they would want help with planning permission and were prepared to give the party £1m. At that point the meeting was terminated. Lord Levy does not, and cannot, arrange meetings with ministers.”

The Richardsons categorically deny asking for access to ministers or discussing planning permission.

Sainsbury has also donated to a Blairite group called Progress that provides staff for general election campaigns. Progress has received more than £40,000 from Pfizer, a US pharmaceuticals firm, £5,875 from Network Rail and £6,510 from the British Retail Consortium. Pfizer and Network Rail say the money was to sponsor meetings or events.

Sainsbury gave £250,000 to set up the group and has donated a total of more than £500,000. Two other Labour donors who have been honoured — Sir Frank Lowe and Lord Bhattacharyya — have also given money.

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