Peerages of millionaire party donors are held up by new inquiry

Lords appointments watchdog delays Blair's honours list to give it time to investigate political donations

Tony Blair has been dealt a humiliating blow by the honours watchdog which has launched a probe into three more millionaire party donors recommended for seats in the House of Lords.

The honours system has been plunged into disarray after the Lords Appointments Commission, in an unprecedented move, refused to rubber-stamp Downing Street's list of political peerages.

The list was leaked to The Independent on Sunday, revealing that the Prime Minister wanted the donors awarded with peerages. Two nominees, the stockbroker Barry Townsley, 59, who gave £6,000 to the Labour Party and £10,000 to Frank Dobson's failed campaign to be London's mayor, and the Green nominee Hugo Charlton, who nominated himself for a peerage, removed themselves from the list after the leak appeared.

Now three more figures who were nominated for peerages after giving substantial sums to political parties are under scrutiny.

Two are Dr Chai Patel, a high-profile Labour donor who heads the Priory clinics, Sir David Garrard, a millionaire property developer knighted in January 2003 for charity work, who gave £200,000 to Labour the following May, as well as millions of pounds to Bexley Business Academy.

The committee has also launched an inquiry into a third, Robert Edmiston, a Tory donor and chairman and chief executive of IM Group, who was nominated by Michael Howard. He has given millions of pounds to city academies and £250,000 to the Conservative Party.

After the IoS revelations last October, the committee also looked at DUP leader Ian Paisley's nomination of his wife, Eileen. But she is understood to have been approved as an appropriate nomination.

The committee is believed to be examining whether the donors are all domiciled in Britain for tax purposes as well as the exact status of their donations. Being a donor to a political party is not a bar to a peerage and there is no implication that the nominees have done anything wrong. But the commission is understood to want to "satisfy itself that the person would be a credible nominee irrespective of any payments made to a political party or cause".

Downing Street is said to be furious that the list, approved last July, has been held up by the commission, chaired by Lord Stevenson. The impasse has renewed accusations that Mr Blair is taking "cash for peerages" and rewarding businessmen who supported some of his more controversial policies with Lords seats.

The House of Lords Appointments Commission, an independent committee made up of senior politicians from all parties, is in charge of vetting nominations "to ensure the highest standards of propriety".

It also vets "individuals added to honours lists by the PM for propriety". It makes recommendations to Mr Blair about nominees, but has no statutory power. But sources close to the committee say it has serious concerns about some of the names on the list.

Those nominees who have not given cash to political parties are in limbo as they wait for Mr Blair to resolve the impasse. No one from the Lords Appointments Commission was available for comment.