Prescott backed plan by developers who lent Labour £3.3m

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Indy Politics

Labour faced further embarrassment over the cash for peerages affair amid reports that John Prescott made a second planning decision in favour of two property developers who made secret loans to the party.

Andrew Rosenfeld and Sir David Garrard, who together loaned Labour £3.3m, are major stakeholders in the Minerva property firm behind a £600m US-style mall in Croydon, south London. The Deputy Prime Minister, who says he knew nothing about the secret loans, refused an appeal against the rejection of a rival scheme in October. It is the second favourable decision made by Mr Prescott: in 2003 he waved aside objections to the giant Minerva tower.

The news came as two more secret lenders last night turned up the pressure on Mr Blair by giving more details of how Lord Levy solicited the loans and helped conceal them from an independent honours watchdog.

Speaking exclusively to The Independent on Sunday, Sir Gulam Noon, who lent £250,000, said: "They asked me for a loan. I would have given them money but they wanted to do the loan."

A spokesman for Chai Patel, also nominated by Mr Blair for a peerage after lending £1.5m, said he had been helped by Labour to fill in forms sent to the independent House of Lords Appointments Commission. "Michael Levy was the source of Chai's advice."

Metropolitan Police detectives have begun an investigation into whether a 1925 law banning the sale of peerages has been broken. The investigation was triggered after Jack Dromey's revelation 10 days ago that he had been kept in the dark by Downing Street about the £14m secret loans. Suspicions that the union official was "put up to it" by Mr Brown have been fuelled by a Blair ally's account of a row between the Chancellor and the Prime Minister two weeks ago.

One told the IoS: "There was a row about pensions reform. Brown wanted to kill off the Turner report in his Budget, but Blair wouldn't let him and Brown threw one of his rages. He left the room saying, 'You haven't heard of the last about these peerages'."

Mr Brown's camp dismissed the claims as "preposterous", saying the Chancellor had never discussed the issue with Mr Blair. "These people are trying to drag him into their mess," said a source close to Mr Brown.

The competing versions of events leading up to Mr Dromey's bombshell keep at fever pitch Labour's internal crisis over the funding scandal. Charles Clarke questioned the treasurer's competence while Mr Dromey's wife, Harriet Harman, was removed at the last moment from BBC1's Question Time panel. Although the Home Secretary later apologised to Mr Dromey, tensions remain high amid fears that the lenders could bankrupt Labour if all sought repayment.

The Conservatives were dragged into the row as the IoS revealed one of its mystery backers. Michael Hintze, one of London's wealthiest bankers, channelled £2.5m to Tory coffers through an investment trust just before the general election. It is the largest loan to any political party so far revealed.

Mr Hintze, an Australian, was reported to have earned around £60m from his hedge fund last year. A philanthropist, he was recently made a Knight Commander of St Gregory by Pope Benedict XVI. David Cameron is refusing to follow Labour's lead in identifying its secret lenders despite calls from one of his front benchers for "utter transparency".

* A parliamentary committee will defy a police request to defer its hearing on Tuesday into "loans for lordships". The House of Commons Public Administration Committee will go ahead with its questioning of Dr Chai Patel and Sir David Garrard until they have completed their own inquiries into allegations that Labour sold peerages.

A Scotland Yard spokesman said: "We would expect the criminal investigations to take precedence." But a committee spokeswoman said: "We are conducting our inquiry. We are going ahead. It is for the police to conduct their inquiry."