Tories caught up in Russian oligarch row

The saga of Lord Mandelson, shadow chancellor George Osborne, Russian tycoon Oleg Deripaska and his luxury yacht, took a new twist today with claims - strongly denied - that the summer encounter in Corfu could have involved a suggested donation to the Tories from the billionaire.

The spectacle of senior politicians rubbing shoulders with the super-rich has once again come to haunt both major political parties after the corrosive and ultimately abortive cash-for-honours investigation which dogged Tony Blair's last period in power.

Last August, then EU Trade Commissioner Peter Mandelson spent some time aboard aluminium baron Mr Deripaska's 238ft boat the Queen K, staying overnight apparently because his friend Nathaniel Rothschild, son of the banker Lord Rothschild, had no space to spare at his luxury villa on the island.

This disclosure, which appeared after Lord Mandelson was brought back into the Cabinet in a shock move by Gordon Brown, was accompanied by questions over whether it was wise of him to appear so close to a businessman often dubbed Russia's richest, at a time when his Brussels post involved him in complex trade negotiations.

Both Lord Mandelson and the EU Commission dismissed any notion that the apparent link with Mr Deripaska had any bearing on his Brussels' job.

Then came claims that at the same time Peter Mandelson had a chance meeting with Mr Osborne, also enjoying a stay with the same elite circle on Corfu, and over a meal in a taverna the then New Labour exile had "dripped poison" about Mr Brown to David Cameron's right-hand man.

Once again, Lord Mandelson, now Business Secretary, hit back, saying he would no more disclose what Mr Osborne had said about his colleagues, than he hoped the shadow chancellor would disclose details of their private chat.

So far, the scenario was a familiar one for followers of Lord Mandelson's roller-coaster career, with his ease among the wealthy elite of showbusiness or commerce inevitably attracting headlines and claim and counter claim. Lord Mandelson dismissed the stories as "muck-raking".

But today there was a fresh turn of events with Nathaniel Rothschild writing to The Times saying that Mr Osborne had also spent time on the Queen K, along with Tory chief executive Andrew Feldman, and that a possible donation of £50,000 to the party was discussed.

Such a move would have been almost certainly illegal and a Conservative spokesman insisted the claims in Mr Rothschild's letter were "completely untrue". The spokesman said that the two men had spent a "short time" aboard the yacht but insisted donations had never been discussed.

The spokesman said Mr Rothschild - who was at Oxford University with Mr Osborne - had later suggested a donation from Mr Deripaska, through one of his British companies, but the party had turned him down flat.

In the end the affair may cause more damage to the Conservatives than to Lord Mandelson, who is so used to controversy that Mr Brown must have put that "in the price" when he brought his one-time enemy in from the cold.

But Mr Cameron's Conservatives have been assiduously trying to shrug off the "Tory toff" insults hurled at them by Labour, pegged on backgrounds in elite schools and universities.

They have more to lose, as voters weary of the detail of claim and counter-claim but simply take away an image of a charmed circle whiling away the summer months against a backdrop of Greek islands, billionaire businessmen, luxury yachts and old varsity friends from vastly wealthy families.

The picture does not chime well with the dour predictions of tough times ahead in credit-crunch Britain.