A FOURTH wealthy Labour donor is to have his nomination for a peerage blocked after it emerged that he gave a secret loan to the party.

Sir Gulam Noon, the curry magnate nominated to become a lord by Tony Blair, is the latest name to be dragged into the scandal surrounding Labour’s covert loans.

Sources close to the Appointments Commission, the body that vets potential peerages, say it is withdrawing its previous endorsement of Noon because neither he nor the party disclosed his loan of up to £250,000.

Downing Street was also under pressure this weekend to say whether Lord Sainsbury, a minister, gave a multi-million-pound loan to the party. A senior Labour source disclosed that Sainsbury was a lender and is expected to be named in an internal inquiry this week. No 10 and Sainsbury repeatedly failed to deny it yesterday.

If Sainsbury has given a loan, he may be obliged to declare it under the ministerial code, as it could compromise his working relationship with the prime minister. Blair must be able to dismiss or reshuffle ministers on merit and cannot be beholden to them financially.

Sainsbury, who has openly donated £6.5m to Labour since 2002, is one of the government’s longest-serving ministers, in the same post since 1998.

The moves come after Blair was forced to admit last week he had authorised the secret loan scheme, following revelations in The Sunday Times. The scheme allowed Labour to conceal millions of pounds given by wealthy backers, who were then nominated for peerages.

Three other Labour donors who secretly loaned the party £4.5m have already been blocked by the commission after being nominated as peers by Downing Street.

Labour received almost £14m in loans to bankroll its 2005 election campaign. Sources close to Downing Street have said there were at least eight wealthy backers who gave loans, including the four who were recommended for peerages.

Yesterday Jack Dromey, the party treasurer who last week castigated Downing Street for keeping him in the dark about the loans, promised the "full facts" would be put before the party’s national executive committee on Tuesday. "I am absolutely determined to report the matter in full," he said.

Ian McCartney, the party chairman, said he was aware of the loan scheme but was never given the names of the secret backers. He piled the pressure on Downing Street this weekend by saying the party should have declared the loans to the commission.

He revealed he was in hospital when he was asked to sign certificates drawn up by No 10 vouching for the proposed peers just before he had a triple heart-bypass operation last October. However, he was not told the would-be peers had made loans.

Commission sources indicated last week that Blair may have "broken the spirit" of the rules if he failed to declare individual loans he was aware of. John Prescott, the deputy prime minister, and Gordon Brown, the chancellor, are said to have been unaware of the loans until last week.

A Sunday Times-YouGov poll shows Blair has been damaged by the scandal. The poll found most people do not believe him when he says he has never given peerages and other honours in return for political donations. By 56% to 14%, four to one, voters think it has happened routinely. A similar proportion, 54% to 17%, think Blair has acted improperly.

Blair, who came to office promising a crackdown on sleaze, is now regarded as sleazy by 53% of voters, compared with only 24% who think he is not. By more than three to one, 64% to 19%, people think Labour kept its loans from rich donors secret because it was embarrassed by them.

Noon, who has made a fortune of £50m as founder of an Indian food company and has donated more than £220,000 to Labour since 2001, initially denied giving a loan when asked by The Sunday Times 10 days ago.

However, on Friday he admitted he had been asked for a loan, rather than a donation, by Labour: "It was a small loan of £200,000 to £250,000. The peerage stuff was not even in the conversation. I have done my job. The commission has to do their job."

Yesterday sources close to the commission confirmed it would now be recommending that Noon’s proposed peerage did not proceed. Although the commission has no formal power to reject nominations and only makes recommendations, Blair has indicated he will follow its advice.

The source said: "This [the loans] was a loophole that should not have existed."

The commission previously blocked three donors — Chai Patel, Sir David Garrard and Barry Townsley — ruling they were unfit for peerages. It was unaware all three had given loans to Labour. A Tory donor, Robert Edmiston, has also been blocked.

No 10 aides are furious about the way Blair and Downing Street have been criticised by senior figures in the party and are convinced supporters of the chancellor are to blame.

A Downing Street source launched a fierce attack on Dromey, who is also deputy general-secretary of the T&G union and married to the Brownite minister Harriet Harman. "On Wednesday night, they seem to have let this lunatic [Dromey], out of the asylum," the source said of Dromey’s angry television interviews last week about the loans.

"He was quite happy to spend the money like it was confetti but didn’t check anything — unlike his predecessor. I mean it’s total lunacy.

"Obviously someone has set him up to do it. I think Brown’s done it. I think Brown and Harman have cut a deal. Brown has put the knife into Blair and he’s used Dromey to do it." The allegation is vehemently denied by Brown and Dromey.

This weekend further details emerged about the affair:

Labour is expected to pay no interest on the short-term loans until they are due to be repaid. It has no provision for repaying the cash and sources admit it is conceivable the money will be written off or "rolled over" into new loans.

BLAIR’S RATINGS FALL

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