Labour received £14m in loans

A spokesman said in a statement that a total of £13,950,000 was received and that all loans were "in full compliance" with party funding rules.

The total is considerably higher than the £4 million worth of loans already known to have been given to the party by three millionaire backers in the run-up to last year's General Election.

The Labour spokesman said: "The Labour Party has received £13,950,000 in commercial loans from individuals.

"These loans were taken out in full compliance with the rules of the Political Parties, Elections and Referendums Act.

"As set out in our statement yesterday, the National Executive Committee officers will next week propose that all future commercial loans agreed by the party be declared publicly, including their sources.

"The loans will be recorded in our annual accounts 2006 (covering January to December 2005) in the usual way "These accounts will be published in June."

Today's announcement will inevitably raise questions about the source of the money lent to Labour, as well as how and when the party intends to pay it back. Controversy over the loans was ignited on Wednesday, when party treasurer Jack Dromey launched an internal inquiry after revealing he had not been informed about the money.

Elected party officials had been "kept in the dark" by 10 Downing Street, he said.

Mr Dromey is due to report to the party's ruling National Executive Committee next Tuesday.

Prime Minister Tony Blair yesterday confirmed that he had been aware that the party was borrowing large sums from individual supporters.

But he said he did not inform the House of Lords Appointments Commission about the money when he nominated three of those involved for peerages last year.

Unlike gifts, loans at commercial rates of interest do not have to be declared to the Electoral Commission for publication in its quarterly register of donations to parties.

The Commission moved yesterday to close this loophole, urging parties to declare their loans.

Cabinet minister Patricia Hewitt today insisted there was nothing illegal or wrong about what Labour had done.

But she accepted that it was "unwise" for the party to receive money in a way which gave rise to suspicions that it was offering honours in return for cash.

And she said something would have to be done to make the system more transparent, suggesting she would like to see state funding for political parties and an elected Second Chamber of Parliament.

The Health Secretary insisted there was no truth in "outrageous" allegations that Labour was selling seats in the House of Lords.

"Nothing illegal has been done," Ms Hewitt told the BBC Radio 4 Today programme.

"I think it has been unwise to have loans that - although they were perfectly legal and although nothing wrong has been done in terms of these allegations about peerages for loans and all the rest of it - nonetheless gives rise to suspicion.

"I think the Prime Minister dealt with this very clearly yesterday when he said not only are we going to bring forward further proposals for reforms of the House of Lords, but we will also, with the other political parties and an independent body, look at how we make even further steps to ensure proper transparency in party political funding."

Ms Hewitt added: "Quite clearly, we have got to do something about the business of loans. Of course they are not transparent."

But she said it was "absurd" to suggest parties should be barred from appointing their financial supporters to political seats in the House of Lords.

People who fund political parties should be seen as "doing a public service for our democracy", not treated with suspicion and disdain, said the Health Secretary.

And she added: "There is no evidence at all for this outrageous suggestion that people have been buying peerages or have been offered peerages for sale."

Labour's reforms have made Britain's political culture "one of the most transparent and honest systems of political party finance in the developed world", Ms Hewitt said.

"There is now more for us to do, not only in the Labour Party... but right across the political system, so that everybody agrees on the best way forward, which I believe has to do with electing the House of Lords on the one hand and having the combination of state funding and stricter controls on individual donations and on party campaign spending," she said.

Labour's former deputy leader Lord Hattersley last night said he was "horrified" by the sums taken by the party in loans without the knowledge of Mr Dromey.

"It all demonstrates that the Labour Party leadership is too obsessed with the world of money. The Labour Party should not behave in this way," he told BBC2's Newsnight.

"Labour Party supporters will be horrified, and quite rightly so."

And Lord Haskins, a former Labour peer and close adviser of the Prime Minister who was expelled from the party for donating cash to a Liberal Democrat candidate, said the affair appeared "a bit dodgy".

"When political leaders start talking to citizens about behaving better and respect and all that, you can't be surprised that there is cynicism in the public when they see behaviour going on like this," he told Today.

Labour last night sought to defuse the "loangate" controversy, promising to declare all future borrowings - a move swiftly followed by the Tories.

Mr Blair also signalled a string of changes to party funding, ministers' private interests and the honours system, amid claims that wealthy donors were being rewarded with peerages.

Mr Blair's official spokesman said last night that an independent figure would be appointed to start inter-party talks about state funding for political parties.

The Prime Minister also suggested he was in favour of another independent figure being appointed to advise ministers on their financial interests, something that No 10 rejected in the wake of the Tessa Jowell affair.

And he said he wanted to renounce the right personally to nominate people for honours, other than Labour working peers and some individuals being rewarded for distinguished public service.