A wealthy businessman who lent Labour £250,000 announced today that he was asking for his nomination for a seat in the House of Lords to be withdrawn.
Curry tycoon Sir Gulam Noon said he had written to Tony Blair asking him to remove his name from Labour's proposed list of working peers.
In a statement to the Press Association, Sir Gulam - who was named yesterday as one of 12 wealthy party supporters who lent almost £14 million last year - said the current controversy had placed him in an "invidious position".
His announcement came as party treasurer Jack Dromey was reporting to Labour's ruling national executive committee on his investigation into the use of undeclared loans to fund the 2005 general election campaign.
In his statement, Sir Gulam said: "In view of the recent controversy over the process of selecting working peers, I find myself in an invidious position not of my making.
"My international business reputation, built up over 50 years, is of the utmost importance to me. I have always acted with complete propriety and worked with integrity to build several businesses, both in the UK and overseas.
"My financial support for political parties is a matter of public record and I have always complied fully with every request made of me for information.
"I have today written to the Prime Minister asking for my name to be withdrawn.
"I believe the reason why I was nominated to the House of Lords was because of my work with the wider community and my extensive charitable work, which I pledge to continue.
"I am a firm supporter of New Labour and will gladly continue to be."
Mr Blair left the NEC meeting at 10.56am, almost 90 minutes after it began.
He left the building without responding to journalists' questions put to him as he left.
Two other lenders named in Labour's "rich list" - stockbroker Barry Towsley and property developer Sir David Garrard - have already asked for their nominations for working peerages to be withdrawn.
A fourth lender - Priory clinics founder Chai Patel - whose nomination for a peerage has been blocked by the House of Lords Appointments Commission disclosed today that he he been asked to provide a loan rather than a donation.
Under existing law, donations must be declared publicly unlike loans which may remain secret as long as a commercial rate of interest is paid.
Dr Patel insisted however that there was "absolutely" no suggestion that he would be rewarded with a peerage.
He said on the BBC Radio 4 Today programme that Mr Blair's fundraiser Lord Levy contacted him to say Labour needed money following the General Election.
He said he had earlier indicated to him that he would be prepared to give money.
"At that meeting I agreed to a donation - £1.5 million. A few days later he phoned me to tell me that I could now donate the money as a loan rather than as a donation.
"I was told that would be the preferred way to do it. And the reasons that have now been articulated are that a loan is not disclosable."
Dr Patel said it was easier to raise money when it did not have to be disclosed.
"You can see from today's papers that actually if you donate money or loan money, when it comes out it brings a whole degree of innuendo, scrutiny, some suggestions that there may be other reasons and other motives for giving money," he said.
"It is always attractive if you want to give not always to have that necessarily disclosed."
Dr Patel said he had made the loan on commercial terms. He said he expected his money back but the option was available to convert it into a donation.
He added: "I voluntarily went to the party to give money because I happen to believe in the values and the policies of the party. At no time has there been either an implicit or explicit conversation about any form of reward associated with this."
Dr Patel said he was upset by the suggestion of a link between loans and peerages and complained that his record of public service had been ignored.
He said that if the House of Lords Appointments Commission had wanted to know if he had loaned money to Labour, he would have gladly told it.
He added: "I feel very hurt. Where I have arrived is somewhere I wanted to be, which is to serve in public life. I see the second chamber as a legislative chamber, as a very serious place to be an unelected legislature.
"A politician is a serious responsibility. I believe I could have made a difference. I happen to voluntarily contribute some of the money I have towards a party I happen to believe in.
"Instead of having any acknowledgement for that, I have been dragged down into a two-dimensional person where I've somehow got money and I want to buy myself a bauble. That doesn't seem like a fair way to be treated."
The Conservatives' finances were also coming under the spotlight, after party treasurer Jonathan Marland said last night that he would not "under any circumstances" disclose the source of loans made to the party.
He said that he he saw no reason to follow Labour's example and publish the names of individual lenders.
"Labour are in a very big hole, of course. We are not in the same hole," he told BBC2's Newsnight.
However shadow attorney general Dominic Grieve said that he believed the party should now reveal the identity of its wealthy lenders.
"I hope very much that my party will be in a position to do that. We clearly have a duty to our lenders. But, in my view, transparency is absolutely essential," he told the Today programme.
"The treasurer has a responsibility to those who gave money under a system where that system says they are entitled to anonymity and it is within the law. But, personally, I have always taken the view that we should have complete transparency."Reuse content