Non-resident party donors may be banned

The Government is under pressure to back a proposal for people to be banned from donating to political parties unless they pay tax in Britain.

The Justice Secretary, Jack Straw, said he was "actively considering" a plan that could prevent some big donors to the Conservatives from giving money to the party in future. Labour MPs claim that could include Lord Ashcroft, a Tory deputy chairman, and Lord Laidlaw of Rothiemay, who has failed to honour a promise to register for tax purposes in Britain he made when he became a peer.

More than 60 Labour MPs have signed an amendment to the Political Parties and Elections Bill, which will be discussed next week, to impose a ban on non-UK residents donating to parties. It is backed by the Liberal Democrats, the Scottish National Party and Plaid Cymru. If the groundswell of support continues, there is a good chance of the issue being put to a Commons vote. Ministers had intended to address the question of cleaning up the Lords until a Constitutional Reform Bill is introduced in the spring.

Tory MPs claim ministers are creating a "diversion" in an attempt to hide their embarrassment over the four Labour peers embroiled in the "cash for amendments" affair. Tory sources suggest Lord Ashcroft has given David Cameron reassurances about his tax affairs and point out that Lord Laidlaw no longer takes the Tory whip. "This is a smokescreen," one senior Tory said.

The Monaco-based Lord Laidlaw has donated more than £4m to the Tories since 2001. So has Lord Ashcroft, who has ploughed money into Tory campaigns in marginal seats that will decide the next general election.

In a separate move, Mr Straw is to try to limit the impact of the Ashcroft operation by ensuring that spending limits for all parliamentary candidates are triggered at an earlier stage.

Gordon Prentice, who is leading Labour backbench calls for a ban on non-residents making donations, said: "It is quite wrong that people are bankrolling political parties here when they do not pay UK taxes." His proposal would ban parties from accepting money from anyone not resident for tax purposes. Parties would have to declare a person donating more than £5,000 was a UK resident. Tory officials pointed out that Labour had at least one major donor, businessman Lord Paul, registered as a "non-domicile".

Lord Laidlaw, the biggest single donor to any political party in Britain, may decide to halt his donations to the Tories of his own volition. He has taken a leave of absence from Parliament after failing to abide by a promise to bring his finances onshore by 2004.