Loans for honours: Tony Blair could lose his seat

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Tony Blair could be forced by law to stand down from Parliament if he did not reveal the full truth about millionaire Labour donors whom he nominated to the House of Lords.

The law governing elections, brought in by Mr Blair, calls for full disclosure of loans and the "person or body making such a donation".

Any MP found guilty of withholding such information from the party treasurer would have to resign his seat. Mr Blair, the member for Sedgefield, did not tell Jack Dromey, the party's honorary treasurer, about the loans.

Mr Blair's deputy, John Prescott, the Chancellor, Gordon Brown, and members of the party's ruling body, the National Executive Committee, were also kept in the dark. The party auditors, who formally signed off the accounts, were not told about the loans until almost a year after they were received.

The Prime Minister also did not reveal the identity of the lenders, including Dr Chai Patel and Sir David Garrard, to the party's former general secretary, Ian McCartney, although he had to verify nominations to the House of Lords.

Under the Political Parties Elections and Referendums Act, an MP who "withholds from the treasurer of a registered party any material information" about donations will have to "vacate the seat or office".

The Labour Party's registered treasurer, Matt Carter, has already been interviewed by police. He has not disclosed whether he knew of the loans and the nomination of the lenders to the Lords. Their peerages were blocked by the House of Lords' Appointments Commission. A prosecution under the Elections Act would not require the blessing of the Attorney General.

This week, the party will be forced to publish the terms of the loans, including repayment dates and the interest terms of their borrowing from banks. The loans from backers proposed for peerages were made at 2 per cent above base rate, which Labour says is a commercial rate. Some City experts disagree.

Lord Oakeshott of Seagrove Bay, a pension fund manager and the Liberal Democrat Treasury spokes-man, said: "Early in 2005, Labour was already £2m into negative equity; in other words they had a 123 per cent mortgage... a £12m black hole in their balance sheet and operating losses of over £10m over the past four years."