Davis embroiled in row over £20,000 donation

Labour MP writes to Electoral Commission over payment to senior Tory's leadership campaign

A senior member of David Cameron's Shadow Cabinet has been dragged into a fresh row over political funding after a Labour MP asked the elections watchdog to investigate a £20,000 contribution to his campaign team.

David Davis faces the prospect of an Electoral Commission inquiry over a substantial donation that passed through several hands and was declared by four people, including Derek Conway.

The boss of a property company last night confirmed that a £20,000 donation to the Tories in the summer of 2005 was "essentially" a contribution to Mr Davis's campaign to succeed Michael Howard as leader.

But the donation, from Regent Square Estates Ltd did not appear in Mr Davis's declaration to the Electoral Commission, which records the money collected and spent by Britain's politicians. Instead, it was registered as two separate £10,000 donations under the names of two of his closest lieutenants, Andrew Mitchell and Nick Herbert.

Mr Mitchell and MPs who ran Mr Davis's unsuccessful leadership bid later declared to parliamentary authorities that Regent Square had made a contribution to their research costs. Mr Davis and Mr Conway, a long-term ally, made similar declarations in the register of MPs' interests.

The affair threatens to further damage the reputation of the leading political parties, already reeling from a string of controversies over political funding.

Last November it emerged that property developer David Abrahams donated more than £660,000 to the Labour Party under other people's names, in breach of the law on party donations, prompting the resignation of Labour general secretary Peter Watt.

Later the same month, Harriet Harman, Labour's deputy leader, was dragged into the furore when she admitted accepting a £5,000 donation to her deputy leadership campaign from Mr Abrahams' secretary, insisting she did not know where the money came from. Then Douglas Alexander, the former transport secretary, become embroiled when it emerged that objections to a £60m business park backed by Mr Abrahams had been removed. Last month, Peter Hain was forced to resign as Secretary of State for Work and Pensions after police launched an investigation into his failure to declare over £100,000 of donations to his deputy leadership campaign.

Within the past two weeks Conservative MP Derek Conway was suspended for misusing his staffing allowance when employing his two sons. Last week Sir George Young, chairman of the Commons Standards Committee, revealed an upsurge in complaints about MPs, thought to have been prompted by the series of unsavoury revelations.

A spokesman for Mr Davis last night confirmed that the money had been spent on a employing a researcher to handle a flood of inquiries about his "putative" leadership bid. But he said that the shadow Home Secretary did not have to declare it as the campaign had not officially begun until September, when the Tories finally decided on the rules of the contest.

The spokesman said: "The [Electoral Commission] rules aren't clear. The leadership campaign began in September – that's when a candidate was required to take responsibility for all donations received and payments made by them.

"That is what happened. These obligations are true for every candidate."

The Tory leadership race effectively began on 6 May 2005, when Michael Howard announced his resignation following the Tories' third successive election defeat. But his official departure was delayed by internal wrangling over the process for electing his successor.

Mr Davis, who was the leading candidate for several weeks, eventually held his official campaign launch on 29 September.

However, all the candidates in the race had been engaged in a lengthy "phoney war", pulling tens of thousands of pounds into their war chests during the run-up to the official launches. Mr Davis raised almost £140,000 from wealthy individuals and businesses in July alone.

Labour MP John Mann said the confusion raised issues similar to those sparked by the fall of Mr Hain, who resigned from the Cabinet last month over his late declaration of more than £100,000-worth of donations to his unsuccessful deputy leadership bid. Mr Mann has now asked the Electoral Commission to investigate.

Mr Mitchell denied that the campaign team had broken any rules over the disclosure of donations and spending. He said he had ensured Mr Davis had been "punctilious" in his financial disclosures. "Everything that we did was absolutely squeaky clean. It was not only checked, but double-checked. This donation was probably given to me to support the extra work my office was having to do with the campaign. I told Conway to put it on the register because he provided a pass for the chap who was being paid for. The guy was working and reporting to me because of the extra work I was having to do on the leadership campaign."

Mr Conway last night refused to comment. Mr Herbert was unavailable.

Money problems: Politicians with questions to answer

26 November 2007: Property developer David Abrahams donates £660,000 to the Labour Party under other people's names, in breach of the law on party donations. Peter Watt admits he knew of the arrangement, and resigns as Labour's General Secretary.

27 November 2007: Harriet Harman admits she accepted a £5,000 donation to her deputy leadership campaign from Janet Kidd, Mr Abrahams' secretary, insisting she did not know where the money came from.

30 November 2007: Douglas Alexander, the former Transport secretary, becomes embroiled in the scandal when objections to a £60m business park backed by Mr Abrahams were removed.

24 January 2008: Work and Pensions Secretary Peter Hain resigns after police investigate his failure to declare £100,000 of donations to his deputy leadership campaign.

31 January 2008: Conservative MP Derek Conway suspended for misusing his staffing allowance when employing his two sons.

9 February 2008: A £20,000 donation to shadow Home Secretary David Davis's 2005 leadership campaign is referred to the Electoral Commission.