£487,000 donations leave Osborne facing inquiries

Labour turned the tables on the Tories over political donations after it emerged that the shadow Chancellor, George Osborne, had not declared payments of almost £500,000 from wealthy Tory donors.

The money was earmarked to pay for Mr Osborne's staff but was declared to the Electoral Commission as a gift to Conservative Party headquarters and not to Mr Osborne.

The commission was not told the shadow Chancellor was the intended recipient and Mr Osborne did not declare the money to the commission or in the MPs' register of interests. Other shadow ministers may also have staffed their offices through similar earmarked donations.

The payments for Mr Osborne included £190,000 from Lady Serena Rothschild, and £125,000 from Hugh Sloane, a wealthy hedge-fund entrepreneur.

Labour MPs believe the affair mirrors the row over the £600,000 of secret donations to their party by the property developer David Abrahams through his associates, which are now being investigated by Scotland Yard.

Ian Lucas, the Labour MP for Wrexham, has asked the commission to investigate whether the law may have been broken.

He asked Mr Osborne why he did not declare his payments even though David Willetts, another Shadow Cabinet member, registered similar donations made through Tory HQ. Mr Osborne also faces an inquiry by John Lyon, the Parliamentary Standards Commissioner, over whether he should have included the payments in the MPs' register.

The Tories dismissed the row as a storm in a tea cup, and much less serious than the controversy engulfing Peter Hain, the Work and Pensions secretary, who admitted last week he had not declared £103,000 of donations to his campaign for Labour's deputy leadership. But Labour claimed Mr Osborne's actions were worse because Mr Hain had made some late declarations while Mr Osborne had disclosed none of the £487,000 from seven backers.

According to the Tories, Mr Osborne was advised by Commons officials that he did not have to declare the money, but that they had now admitted their advice had been unclear.

An email from the Commons registrar, Alda Barry, suggested that MPs should consult the commission and it was their responsibility to report appropriately to it. But a follow-up email said: "the register deals with donations to a member's constituency association and not to central offices."

David Cameron, the Tory leader, insisted his party had complied with the law. "We asked the Register of Members' Interests how it should be declared and we got the email saying that effectively they didn't need to be declared," he told the BBC One's the Andrew Marr Show.

The row over Mr Osborne appeared to ease the pressure on Mr Hain. But Mr Cameron said the minister should resign if he could not explain himself and accused Gordon Brown of dithering over his future.