Poor boy from Hackney who befriended a Prime Minister

The story of Lord Levy is one of a poor boy from Hackney who became a multimillionaire by managing rock stars, and went on to be a close friend of the Prime Minister. His arrest goes to the heart of New Labour because, if he did wrong, it was not on the orders of a middle man: he talked directly to the man at the top.

He and Tony Blair met at an Israeli diplomatic dinner in 1994, the year Mr Blair took on the leadership of the Labour Party. They became tennis partners, and the Blairs joined the guest list at the Friday dinners in Lord Levy's mansion in Mill Hill, a place where Mr Blair could meet people from the world of business, often people who had had no previous contact with the Labour Party.

Michael Levy became a life peer after the Labour victory in 1997. In 2000 he was appointed the Prime Minister's personal envoy to the Middle East, with an office in the Foreign Office. The choice struck some people as inappropriate, given Lord Levy's close ties with politicians in Israel, where both his children live.

In the same year, it was revealed that he had paid just £5,000 tax in 1998-99, the sort of amount someone on a salary of £21,000 would expect to pay. He told BBC News that it had been an unusual year and that over the longer term he had paid the taxman "many hundreds of thousands of pounds".

He was born Michael Abraham Levy in July 1944, in east London, to immigrant parents, and educated at Fleetwood primary school, where he was head boy, and Hackney Downs Grammar School. His first job was as an accountant. He made his money in the 1960s and 1970s, managing stars many people regarded as "naff" but who featured regularly in the charts. They included Alvin Stardust, Chris Rea, and Bad Manners.

In 1988, he sold Magnet Records, the company he had founded and run for 15 years, and threw himself into raising money for Jewish charities. The sale, to Warner Bros, raised £10m. His fund-raising skills and lifelong commitment to Labour were an invaluable combination for Tony Blair. He started funding Mr Blair's office in Opposition, and established a blind trust so that other donors could contribute without appearing to be buying political influence.

More importantly, he was pivotal in turning round the finances of the Labour Party. Before the Blair-Levy era, the Labour Party was the poor relation of the Conservatives, heavily reliant on trade unions. By the mid-1990s, money was pouring in from people rich enough to afford seven figure donations. Most were recruited by Lord Levy - who thereby earned the nickname Lord Cashpoint, which he is said to detest.

David Osler, author of the book Labour plc - New Labour as a Party of Business, described his technique. "He will invite people round for dinner. He will invite people to his home and maybe invite them to play tennis on his private tennis court and say, "Well, Tony might just turn up". Tony does turn up, they play a round of tennis, Tony leaves. Twenty minutes later, he will be sweet-talking them into making a donation, and many people are only too happy to." Many of those who were persuaded to contribute large sums to Labour - coincidentally, or not - went on to be life peers.

Lord Levy has never been a publicity seeker. He has given almost no interviews, though he had an alarming habit of ringing journalists and mimicking cabinet ministers. When he has emerged into the limelight, the news has often been bad for Labour. It was Lord Levy who secured £1m from the Formula One boss, Bernie Ecclestone.

The donation was meant to be secret, but became public after the government agreed Formula One should be exempt from an EU ban on tobacco advertising, creating the first "sleaze" scandal for the administration. The Commissioner for Standards made Labour repay the money.

Lord Levy's talents as a fund raiser were deployed again when Tony Blair wanted to ensure the success of his new academy schools - state comprehensives partly funded from private sources. Before the last election, Tony Blair persuaded Levy to switch to asking for loans into the party's election war chest, as a way round the new rules on declaring donations. Those secret loans are at the heart of the allegations against Lord Levy, who vehemently denies that he has done anything wrong.

Though his public appearances are few, Lord Levy gave evidence behind closed doors recently to the Commons committee on Public Administration. He was so persuasive that one MP who heard him said: "If he'd asked me for a donation I'd have handed it over there and then". And he seemed to have drawn one political lesson from his current troubles. He now believes that political parties should be funded by the state, doing away with the need for clever fundraisers like Lord Levy.