The police have widened their inquiry into fundraising by Labour and the Tories to check whether the parties broke the law by disguising donations as loans.
Scotland Yard became involved in the "loans for peerages" affair when it received complaints that Tony Blair may have breached a 1925 law banning the sale of honours by nominating four Labour backers for peerages. Yesterday it announced it was also looking into whether the two parties had broken a law passed in 2000 obliging them to publish donations of more than £5,000 and banning foreign donations.
The move provoked speculation at Westminster that the Tories may run into trouble over some of the £21m of loans they took out. Although foreign loans are not illegal, they must be at a commercial rate. There have been claims that the Tories agreed flexible loans with some backers that would allow the party to vary the repayment terms, which could be classed as a backdoor donation rather than a loan.
The Electoral Commission announced yesterday that it has suspended its investigation into loans to political parties pending the police investigation. The elections watchdog was not satisfied with the parties' submissions saying their loans were on commercial terms and has asked for more information to prove they were not taken out on preferential terms.
Commission officials said Scotland Yard had not asked it to halt its inquiry but that the decision was agreed mutually during its discussions with the police.
Penalties for breaching the 2000 Act range from unlimited fines to a year's imprisonment for party treasurers.
Angus MacNeil, the Scottish National Party MP, who made one of the complaints that prompted the police inquiry, described the commission's decision as "a further sign that the investigation is intensifying".
He said: "It just goes to show the game some political parties are playing is far more serious than the cosy carve-up they thought it was. These are matters which are fundamental to the integrity of our democracy and it was therefore disappointing when Blair and Cameron met [on Tuesday], it was only to discuss party funding and was not an attempt to clean up politics."Reuse content