The Conservative lead is crumbling in the crucial marginal seats that David Cameron is relying on to deliver general election victory for the party, a poll last night disclosed.
The result was a fresh setback for the Tory leader after a torrid day in which he was drawn deeper into the row over the billionaire peer Lord Ashcroft, when it emerged that he had known for less than a month that Lord Ashcroft had maintained his non-dom tax status for 10 years.
The chances of the party drawing a line under the controversy were also wrecked by the announcement that Lord Ashcroft will be summoned to the Commons to explain why he negotiated a secret deal to enter the House of Lords without paying tax in this country on his overseas fortune.
With Gordon Brown expected to announce the election date this month, senior Tories have put a brave face on their sliding support in national opinion polls since the turn of the year.
They insisted they were performing much more strongly in marginal constituencies where the drive for votes has been masterminded and substantially funded by Lord Ashcroft.
The YouGov poll for Channel 4 News found the Tory lead in 60 Labour-held marginals had shrunk from seven to just two points over the past year.
The slide in Conservative support is further evidence Britain could be heading for a hung parliament after the election expected on 6 May. The survey put the Tories on 39 per cent (down four points since last year) and Labour on 37 per cent (up one). YouGov calculated that the results would leave the Tories the largest party after the election, but 11 seats short of an overall Commons majority.
An investigation by The Independent last week found the Tories spent £6m over two years in the marginal battlegrounds, in most cases far outspending Labour and the Liberal Democrats.
The party faces the daunting challenge of capturing 117 seats to achieve a majority of just one – a task described by a shadow cabinet member as a "mountain to climb".
The Conservatives received some good news yesterday when an 18-month inquiry by the Electoral Commission concluded that the £5.1m they received in donations from Bearwood Corporate Services, controlled by Lord Ashcroft, were legal. The party would have faced having to pay the money back had the electoral watchdog reached the opposite conclusion.
However, the commission added its regret that the Tories refused to agree to interviews and that Lord Ashcroft had destroyed documents relating to the ownership of the company.
The commission said that it would be holding meetings with the Tories to clarify their responsibilities in upholding the law when accepting donations. But it found that there was "insufficient evidence to conclude, on the balance of probabilities, that the party was uncertain as to the identity of the donor when accepting the donations". It added that Bearwood was "carrying on business" in Britain.
The Tories were furious last night over the claim that interviews had been declined, insisting that the party had merely wanted to clarify whether the three-hour sessions were necessary. A spokesman said the investigation had given the donations a "clean bill of health" and that the continued questions around Lord Ashcroft's tax status and place in the House of Lords were "part of a politically motivated campaign orchestrated by the Labour Party in advance of the general election in order to distract attention from the real issues facing this country".
Chris Huhne, the home affairs spokesman for the Liberal Democrats, said that it was "extraordinary" for the Tories not to co-operate fully. "It's the equivalent of a criminal suspect asking a police officer whether their work is really necessary," he said.
The Electoral Commission said that Lord Ashcroft had co-operated in handing over documents, through his solicitors, "on a voluntary basis". However, it said some documents could not be located by the peer as "his policy was to destroy documents unless retaining them was a requirement for an auditing, tax, or regulatory reason".
A political row also erupted after the Commons Public Administration Committee decided to hold a one-off inquiry into whether Lord Ashcroft kept his pledge in 2000 to become a UK resident in order to take his place in the Lords. However, its three Conservative members later said they would boycott its hearings, to which Lord Ashcroft will be invited to give evidence.
In 2000, William Hague, who was the Tory leader at the time, said Lord Ashcroft would pay "tens of millions" more in tax after agreeing to live in Britain on being handed a peerage. However, it has now been revealed he then negotiated a deal with the Government allowing him to avoid tax on his overseas earnings. Mr Cameron learnt of the deal less than a month ago, party sources confirmed yesterday.
Lord Mandelson, the Business Secretary, said it was "astonishing" that Mr Cameron had been kept in the dark about the agreement for 10 years. "At a press conference in December 2007 David Cameron said that he had asked Lord Ashcroft and was given the 'reassurance that the guarantees he made at the time are being met'."
He added: "What sort of hold does Lord Ashcroft have on them and the Conservative Party, that they are so weak that they are so incapable of getting to the truth to establish what the facts are, why the British people have been misled for all this time about Lord Ashcroft's residency in this country and the taxes he has been paying?"
The Guardian today claims Lord Ashcroft used his offshore status to avoid paying VAT on opinion polls which he commissioned for the Conservatives.
It reports that "sources familiar with the transactions" said the bills – estimated at £250,000 - were paid by one of his companies in Belize, meaning he did not pay VAT of about £40,000.Reuse content