Hague: I was kept in dark by Ashcroft

Admission suggests Tory leadership is distancing itself from controversial donor

Lord Ashcroft kept William Hague in the dark for years about his controversial tax status, the shadow Foreign Secretary admitted last night as new details about the peer's donations to the party emerged.

In the first sign of the Tory leadership distancing itself from its billionaire deputy chairman, Mr Hague revealed that he had only recently learned of a deal that allowed the peer to claim non-dom tax status.

He had previously suggested that Lord Ashcroft's move to become a permanent UK resident would provide "tens of millions a year in tax" to the Treasury.

Lord Ashcroft wrote to Mr Hague, who was Tory leader, in 2000, giving his "clear and unequivocal assurance" he would become a permanent UK resident for tax purposes in order to take his place in the second chamber. But Mr Hague said he had only found out in "the last few months" that the peer, who has donated millions to the Tories, had later renegotiated the deal with government officials.

At the time Mr Hague wrote to Tony Blair, then the Prime Minister, reassuring him: "[Lord Ashcroft] is committed to becoming resident... This decision will cost him (and benefit the Treasury) tens of millions a year in tax yet he considers it worthwhile." He also acknowledged in the note that a decision to block a peerage for Lord Ashcroft in 1999 had been made, in part, because, "Mr Ashcroft was a tax exile".

But yesterday Mr Hague told BBC Radio 4's World Tonight programme that he only recently discovered the deal that Lord Ashcroft struck over his non-dom tax status.

"Over the last few months I knew about that," he said. "After that, of course I was very keen to support him in making that position public." Last night, some Tories were already interpreting Mr Hague's words as a move to isolate Lord Ashcroft. "David Cameron as leader, and William as deputy leader, have rediscovered an important quality in leadership – utter ruthlessness," one shadow minister said.

Labour were quick to pounce on the admission. Douglas Alexander, the International Development Secretary, said that it had made Lord Ashcroft's position within the Tory party, "completely untenable".

The bombshell by Mr Hague came after he had come under heavy attack in the Commons from Harriet Harman, the Leader of the House. As the pair deputised for their respective leaders during Prime Minister's Questions, Ms Harman said that Mr Hague had been left "without a shred of credibility" by Lord Ashcroft's non-dom status, adding that either Mr Hague or Lord Ashcroft should stand down.

"People who have promised to pay their taxes and given assurances should pay their taxes, and what has happened to the tens of millions of pounds of taxes that the shadow Foreign Secretary promised would be paid by Lord Ashcroft?" she said.

The Independent can also reveal that Lord Ashcroft has made moves that shore up the legitimacy of almost £3m donated to the Conservative Party. Bearwood Corporate Services, used by the peer to hand Mr Cameron's party around £4.7m since 2003, is currently being examined by the Electoral Commission following an allegation that it was not operating in Britain, a legal requirement for companies making gifts to political parties.

However, while the firm only appeared to carry out very limited transactions between 2000 and 2007, its latest accounts reveal that it has suddenly begun to increase its business activities since then. The document shows that the firm, which Lord Ashcroft has only described as a "small merger-broking business", bought stakes in five firms between April 2007 and September 2008.

It is since April 2007 that Lord Ashcroft has used Bearwood to make the bulk of his donations to the Tories, including the three largest cash handouts he has ever made through the firm. The revelations will increase the pressure on the Electoral Commission to complete its investigation into the company, now the second longest inquiry in its history. Last night, Labour MPs demanded that it complete its findings before the election.

Party funding rules state that a company needs to be registered and "carrying on business" in Britain to be eligible to make donations to political parties. Foreign donations are outlawed. However, little is known about the activities of Bearwood.

John Mann, the Labour MP for Bassetlaw whose complaint triggered the investigation, attacked the Electoral Commission yesterday for taking so long to conclude its inquiries and for failing to give him any feedback on when they would be completed. Senior sources within the Commission maintained that they would not be rushed but would report its conclusions as soon as possible. An experienced auditor confirmed that it did appear that Bearwood had suddenly started to increase its business activity two years ago. The Independent asked a spokesman for Lord Ashcroft for a comment on the issue, but did not receive a response.

The Commission began its initial inquiries on 7 October 2008 and informed Bearwood that it had received a complaint about its donations. It took the decision to begin a formal investigation into the firm on 30 January 2009, but has yet to report back. It could not confirm yesterday that the probe would be completed before the next election.

Companies that are alleged to have been used as part of a chain to funnel money from Belize to the Tory party coffers have been wound up since the Electoral Commission began to investigate Bearwood. According to accounts for the year ending March 2006, Bearwood Corporate Services appeared to receive £4.79m from its parent company, Bearwood Holdings. In turn, Bearwood Holdings is alleged to have secured that money from a shares issue worth £5.54m to Astraporta UK. Completing the alleged chain, Astraporta UK raised £6m by selling shares to the Belize-based Stargate Holdings. According to parliamentary answers, both Bearwood Holdings and Astraporta went into liquidation in March 2009 and were officially "struck off" as companies on Monday.