Levy may quit role as the supreme fund-raiser

Pressure mounts on position of well-travelled envoy as Blair fails to settle unease over Labour donations

Lord Levy of Mill Hill, Tony Blair's personal envoy to the Middle East, may step down as Labour's chief fund-raiser because of the growing controversy over his double role.

It emerged yesterday that Lord Levy had to fight hard to win himself a place on a new fund-raising committee set up by Labour on Tuesday to vet future donations of more than £5,000. There is growing speculation in Labour circles that he may step aside from his party work when the new system is reviewed in six months.

Blair aides insist the Prime Minister still has full confidence in his close friend and tennis partner, who has been an invaluable one-man money-raising machine with legendary powers of persuasion to turn goodwill in to hard cash.

Mr Blair faces an agonising dilemma. Firstly, as one aide put, "Tony loves Michael Levy." Secondly, he needs him more than ever because Labour is almost £5m in the red.

Some companies, worried by the endless tide of "cash for favours" allegations, have decided that giving money to political parties is no longer worth the candle.

But, even within Labour's high command, there is a feeling that Lord Levy's days as chief fund-raiser may be numbered. "He fought tooth and nail to be on the committee, but I think there will be a friendly parting of the ways," one Blair aide said. "There is a danger that the funding issue will become dominated by the personality of one man."

Lord Levy's role has already been watered down by the creation of the new six-strong committee, which will put the party firmly in the driving seat when deciding whether to accept donations. But friends of Lord Levy insist he will still be very much involved and will continue in the crucial role of reeling in the big fish who have kept Labour afloat.

Lord Levy made his fortune as a record producer, discovering Alvin Stardust and Chris Rea, and sold his Magnet Records for £10m in 1988. He now wants to give something back through his work for several charities, including Jewish Care, think tanks, raising money for Labour and his work in the Middle East.

His different roles have raised eyebrows, but he insists there is no conflict of interest. When he was a chartered accountant, he points out, he was quite capable of serving different clients. "I can put various areas of my life into categories and boxes," he says. But for some Labour MPs that is not enough in the tough world of politics, where even the appearance of a conflict of interest must be avoided.

Lord Levy insists he is a man sinned against by the media and that not a single fact showing any wrongdoing has emerged.

When it was reported that he was paid £100,000 by the Westfield Corporation, an Australian property company seeking to develop shopping centres in Britain, he alleged that someone had posed as his his solicitor in an attempt to obtain a copy of his contract with the firm.

His role as Mr Blair's personal envoy, which has raised some hackles at the Foreign Office, has involved 45 trips to 19 different countries ranging far beyond the Middle East and including South America, Africa, France and Germany.

It has led to claims that he is unaccountable and should be made a minister by Mr Blair. Friends dismisses the caricature of a man junketing around the world, insisting that Lord Levy is out of pocket because he pays his own expenses.

Yesterday Mr Blair expressed his frustration about the issue of party funding when he addressed a private meeting of Labour MPs. He told them that Labour should be "robust" about its record in ensuring that donations are made public, which the Tories never did. But he admitted that he would only bring in state funding for parties if there was a consensus – and the Tories are saying "no".

Mr Blair was warned at the meeting that setting up the new committee would not halt the controversy over funding. Earlier some Labour MPs dismissed the plan.

Paul Flynn, MP for Newport West, said: "It's a cosmetic move which does not get to the heart of the problem, which is that the public doesn't like political parties being dependent on rich contributors from outside." Following the row over Labour's decision to accept £100,000 from Richard Desmond, the newspaper and soft porn publisher, Lynne Jones, MP for Birmingham Selly Oak, said: "I think it would make sense that more ethical issues should be taken into account."

Under fire - what they say about lord Levy

Levy on Levy: "When I am continually bombarded by innuendo and inference, it becomes very waring for me and my family. There has been no statement of fact that anything I have ever done is wrong."

George Galloway (Labour): "'A failed record producer whose only claim to fame was Alvin Stardust and having raised some millions of pounds for Mr Blair's private office, he is clearly now swaggering around the world, trading on his influence in British government circles."

Tam Dalyell (Labour): "I'm totally against these unofficial envoys. In what way is he accountable to Parliament? All foreign affairs should be conducted through Foreign Office ambassadors who are responsible to the Secretary of State for Foreign Affairs who is in turn responsible to Parliament."

Tony Blair: " I am satisfied that there is no conflict of interest ... Lord Levy is not a minister."

Downing Street: "We are not going to get into a running commentary on his movements."

Tim Collins (Conservative): "There are serious questions about the role of Lord Levy and Tony Blair's extraordinary decision to appoint an unelected Labour fund-raiser to an important role on British foreign policy."