Sources close to the Nolan committee, which is meeting today, said an inquiry into members' interests in the Lords was now a "front runner" for its next investigation, and a review of standards in local government would also be on the agenda.
The inquiry became embroiled in party-political controversy after Downing Street made it clear the Prime Minister would not agree to its terms of reference being widened to carry out an investigation into how the parties are funded. That would have covered the secret donors of substantial sums to the Conservative Party as well as the trade union backing for Labour.
Frank Dobson, a Shadow Cabinet member, said: "The Tories are covering up the biggest can of worms of the lot."
Paddy Ashdown, the Liberal Democrat leader, said: "It is typical of Major. He sets a bloodhound on a trail and then calls it off when it threatens to uncover something nasty. It is short-term politics to solve a short- term problem."
As the gloves came off, the Tory party chairman, Jeremy Hanley, accused Labour of "hypocrisy" over party funding following the report in the Independent about funding organisations for the Labour Party election campaign.
The row overshadowed the Nolan report last week which amounted to the most far-reaching recommendations in curbing MPs' interests ever delivered. The Nolan committee had hoped to win all-party backing, but the controversy over its next moves is certain to be raised in the Commons on Thursday when MPs debate the report. The Tories would welcome a Nolan inquiry into local government to reiterate the allegations of corruption in Labour authorities made by Mr Hanley at the start of the Tory local election campaign. But Labour said it would welcome an inquiry into local government.
The Prime Minister's office reinforced his objections to an investigation into party funds as being outside Lord Nolan's remit. "There is plenty of work to be done on their existing remit," a senior source said.
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