The Labour Party has not repaid a penny of the £436,000 interest it owes on secret loans raised by Lord Levy from millionaire supporters.
The revelation will fuel claims that Labour broke the law by concealing loans made by backers who were later offered peerages. The rules say that any loans which are not on commercial terms must be declared.
The police are expected to open a new front in the "cash-for-peerages" affair and to ask why the party has failed to repay the interest it owes to lenders, who include several millionaires personally nominated by Tony Blair for seats in the Lords.
Since the loans were made, over £500,000 of interest has been paid by the party on other loans taken from commercial lenders.
Detectives are already looking into whether the loans were made on terms the party would not have been able to gain from a bank. They are examining whether the loans were made on the understanding that they would be converted to donations later and never repaid. Opposition politicians believe that the loans were not made at a commercial rate and that Mr Blair broke the law by failing to declare them.
Labour Party accounts show that more than £400,000 of interest due on loans made last year by backers including Sir Gulam Noon, Dr Chai Patel, Sir David Garrard and Barry Townsley has not been repaid. None of the four, who were nominated for peerages by the Prime Minister but blocked by the House of Lords vetting body, has asked for their loan to be repaid. Lord Sainsbury, who was made a peer by Mr Blair and is now a minister, was not repaid £95,000 of interest accrued last year on a £2m loan he made to the party.
Labour admitted last night that it had not paid interest on the loans, but had added it to their value. Accounts did show that the party paid £505,000 of interest on other "long-term loans", described by a Labour source as "commercial, pay-back stuff".
Lord Oakeshott of Seagrove Bay, the Liberal Democrat Treasury spokesman and a City investment manager, questioned the non-payment of interest: "It is very unusual, particularly for subordinated unsecured loans of this type," he said. "These are just donations in dark glasses. Labour looks like someone up to his eyeballs in debt who can't even make the minimum monthly payment on his credit card."
Mr Blair is expected to be questioned by police about the difference between the loans on his return from holiday. He will also be asked about a private meeting he held at No10 last month with Sir Gulam Noon, a Labour lender he proposed for a peerage, as revealed by the IoS last week.
A telephone poll for the IoS last week found that 69 per cent of people believe that political parties should not be able to give seats in the House of Lords to people who have given them large donations. In the poll, carried out by CommunicateResearch, which interviewed 1,010 adults, the public thought Gordon Brown and David Cameron were equally well placed to prevent sleaze in government: 34 per cent thought Gordon Brown would be better at preventing sleaze in government while 33 per cent thought David Cameron would be best placed to clean up Whitehall.
Communicate Research, a member of the British Polling Council, interviewed 1,010 adults by telephone. Details at communicateresearch.comReuse content