Sabotage claims a party-funding talks collapse

Cross-party talks over the funding of political parties collapsed last night amid Labour claims that the Tories had "sabotaged" a deal to end the "financial arms race" over election spending and had acted "in extremely bad faith".

Jack Straw, the Justice Secretary and Labour's main negotiator, refused to accept Tory demands for a £50,000 cap on trade union donations and accused David Cameron, the Tory leader, of being "unwilling to negotiate". Labour leaders were furious with the Tories for insisting on cutting donations from trade unions while allowing the Tory donor Lord Ashcroft to continue pouring thousands of pounds into Conservative target seats.

Gordon Brown is now under pressure from ministers and Labour MPs threatened with losing their seats to introduce legislation to close down Lord Ashcroft's financial support for Tory target seats between general elections.

There would be furious arguments in Parliament between the Prime Minister and the Tories if he acted unilaterally and without the agreement of the Conservatives. But the mood among ministers was extremely bitter.

One Labour source accused a faction behind Lord Ashcroft, who has his own target-seats unit inside Tory headquarters, of "sabotaging" the talks. "There are two camps inside the Tory Party – one wanted to see some sort of deal to end the financial arms race, and the Ashcroft camp wanted no regulation at all. They have sabotaged the deal by acting in extremely bad faith."

Chris Huhne, the Liberal Democrat leadership contender, is to make cleaning up party funding a key plank in his campaign manifesto today. He will say: "We need tough limits on donations, and on spending. Corporate influence on government has long exceeded all reasonable limits."

Tory sources said they were prepared to surrender Lord Ashcroft's support for their target seats in exchange for a cap on the trade unions.

But Sir Hayden Phillips, who has been chairing the discussions, said: "It became clear... today that the parties would not be able to arrive at an agreement."

The chief Tory negotiator, Francis Maude, said: "Labour has rejected a comprehensive cap on donations and clearly do not want to end the big-donor culture which has cause the 'cash for honours' scandal."