A full inquiry into the funding of political parties was launched last night by an influential committee of MPs.
Members of the select committee on Transport, Local Government and the Regions, decided to start the investigation on Wednesday after The Independent revealed that Tony Blair was to consider full state funding for parties.
The inquiry, due to report next year, will look at expanding state funding of parties alongside a wide-ranging review of election spending limits and part fund-raising. The issue was discussed at yesterday's meeting of the Cabinet as they reviewed the problems of alleged sleaze surrounding the "Garbagegate affairs".
The Institute for Public Policy Research, a think-tank close to New Labour, has launched a research project looking at moves to pay for politics from the public purse.
The Electoral Commission, the official body set up to monitor and regulate elections, also plans to examine the issue before the next general election.
Aides to Mr Blair say he is warming to the idea of state funding for political parties but is reluctant to embark on reform without cross-party agreement. Many Labour MPs back the idea of state funding. But although the Liberal Democrats are enthusiastic about reform, the Conservatives are cautious.
Last night Andrew Bennett, the Labour co-chairman of the transport, local government and the regions committee, said the committee drew up plans to hold an inquiry into party funding after the general election when responsibility for elections was transferred to the DTLR from the Home Office. But MPs brought forward the inquiry after The Independent reported renewed interest in Downing Street.
The inquiry will take evidence on the effectiveness of the £15m limit on campaign expenditure in the general election last June.
Rules governing political donations will also be examined, along with the role of "short money", taxpayers' money paid to opposition parties to fund parliamentary research and other activities.
Mr Bennett said last night: "This is not a panic response to the issues around at the moment. We have planned for some time to have this kind of inquiry but the best inquiries are held when people are talking about an issue so this is a very appropriate time to be doing this.
"We have state funding of political parties at the moment. The question is how much state funding you have.
"Any prime minister is in a very difficult position. If he says, 'I don't know anything about donations and I could not give space for people who donate' it is difficult to raise money. If he does know about them, he gets criticised.
"It's a dilemma and it needs to be faced up to," Mr Bennett said.
He said the committee hoped to take written evidence over the next few months, before holding public evidence sessions in the autumn.