Tony Blair is facing increasing pressure over the "cash for peerages" affair, and Britain's public standards watchdog has warned that the Government risks being damaged by the same label of "sleaze" that stuck to the Conservatives under John Major.
The Labour Party was dealt another embarrassing blow last night when Lord Sainsbury said he had also lent the party £2m.
The peer - a minister at the Department of Trade and Industry - made the loan on commercial terms last March and said he had informed the permanent secretary of the DTI in accordance with ministerial rules.
But senior ministers, distancing themselves from the row, admitted that voters believed there was a link between loans to the party and political honours after revelations that four of the party's millionaire backers had been put up for peerages.
Sir Alistair Graham, chairman of the Committee on Standards in Public Life, spoke out as a poll revealed that Mr Blair is regarded as "sleazy" by more than half of voters, despite his pledge to ensure high standards in political life.
The chairman of the Electoral Commission, Sam Younger, also entered the row, calling on Labour to publish the names of those who had given the party loans totalling up to £14m before the election, and calling for new limits on political donations.
Sir Alistair said: "This Government clearly is in danger of attracting the sleaze label that was so clearly pinned on the previous government."
He told BBC Radio 4's The World This Weekend: "The problems have come because of a lack of honesty and transparency in some of the arrangements that have been made. Obviously the loans should have been made public and haven't, clearly some of the nominations for life peerages that have gone to the House of Lords Appointments Commission, more information should have been given about what were essentially political donations and wasn't given."
It was claimed yesterday that Mr Blair's nomination of a peerage for the entrepreneur Sir Gulam Noon, who lent Labour £250,000, had been blocked by the Lords Appointments Commission.
Three other backers on Mr Blair's list of peerages are already known to have given loans totalling £3.5m: Chai Patel, the head of the Priory group of rehabilitation clinics, Sir David Garrard, a property developer, and Barry Townsley, a stockbroker.
Polls suggest the furore is severely damaging the Prime Minister's standing, with Mr Blair's personal approval rating slumping to 36 per cent, according to a YouGov poll for The Sunday Times.
An ICM poll for the Sunday Telegraph found that 73 per cent of voters believe Mr Blair's Government is equally or more sleazy than Mr Major's administration. Seventeen per cent believe Labour is more sleazy than Mr Major's government while 56 per cent think them about the same.
Downing Street denied claims that Mr Blair's head of government relations, Ruth Turner, played a key part in arranging applications for the peerages.
But ministers made plain their discomfort at the loan revelations. John Prescott, the Deputy Prime Minister, admitted he had not known about the loans. He said he "certainly wasn't happy" when he learnt about the loans from media reports and acknowledged the growing public concern about the row.
Mr Prescott said: "I do understand that people are feeling very unhappy about it, because in a way I feel there's a kind of unhealthy approach to political financing in this country. If you look over the last 20 years I've personally been advocating state financing." Asked to give a categorical assurance that honours were not sold, he said: "I think we have got to look a lot more at this before you come to those conclusions you have come to."
Geoff Hoon, the Leader of the Commons, also accepted people now thought there was a link between loans and peerages. "I accept that that is the perception sadly that many people have," he told ITV.
John Hutton, the Secretary of State for Work and Pensions, insisted the party had not broken any rules. He told the BBC's Politics Show: "I certainly don't feel comfortable. I don't think anyone feels comfortable about this."
ANDREAS WHITTAM SMITH,
BRUCE ANDERSON, PAGE 33
Sir Gulam Noon, nicknamed Britain's "curry king" for his success in putting Indian food on supermarket shelves, is the latest Labour donor to be caught up in the cash for peerages affair.
Sir Gulam, 70, said to be Britain's best known Muslim businessman, has a history of making significant donations to the Labour Party. His elevation to the peerage has long been predicted.
Figures from the Electoral Commission show that Sir Gulam, who was knighted in 2004, has given the party £220,250 since 2001. He confirmed at the weekend that he had also given the party a loan of £250,000, but has insisted that the question of a peerage did not arise when the loan was agreed last year.
Sir Gulam, who moved to Britain from Bombay in 1970 is said to be worth £50m after establishing a string of businesses.
He has donated millions of pounds to good causes and has spoken out strongly against Islamic extremism.Reuse content