Ukip accuses watchdog of bias over £360,000 donation dispute

The leader of the UK Independence Party has accused the elections watchdog of trying to bankrupt it after it was ordered to hand over more than £360,000 in "impermissible donations".

In a second blow for the anti-European Union party, a millionaire Tory donor said he was withdrawing support for Ukip and backing the new-look Conservative Party under David Cameron.

The Electoral Commission announced it was beginning court proceedings to recover the £367,697 Ukip received from a businessman while his name was missing from the electoral register.

The party, which said it had only a "few thousand" pounds in its coffers, acknowledges the mistake, which it describes as a technicality. But it argues the punishment is disproportionate and says it will fight the Electoral Commission in the courts.

Nigel Farage, the Ukip leader, claimed the party had been singled out as an "easy target" unlike Labour, the Tories or the Liberal Democrats. He added: "I feel a deliberate attempt is being made by the authorities to put us out of business." He accused the commission of desperately trying to "save their own skins over their inaction on the cash-for-peerages affair".

But a spokeswoman for the commission said: "As a regulatory body, we treat all the parties the same. That's our job."

The controversy centres on Alan Bown, who ran a chain of bookmakers before retiring. He has bankrolled Ukip over the past four years. But between December 2004 and January 2006, when he handed over £367,697 in 68 separate donations, he was not registered as a British voter.

Under the Political Parties, Elections and Referendums Act of 2000, parties are forbidden from accepting cash from "impermissible donors", such as people not registered to vote in this country.

But, Mr Farage said: "This legislation was designed to stop foreign dodgy money coming into Britain - it was not designed to penalise people like Alan Bown who make a simple slip with a piece of paperwork."

The party also faces fines totalling £1,500 for filing accounts from the year 2005 late, which it will pay.

The row came as a former Tory treasurer said he changed his mind about giving cash to Ukip.

Lord Kalms, the founder of Dixons, had said he and other Eurosceptics were considering deserting the Tories unless they took a tougher approach to Brussels. But he said he now regarded Ukip as "a bit of a red herring", and added: "I'm not going to give them money."

Lord Kalms said he was now convinced the Tories would adopt a more radical stance on Europe ahead of the next election.

His decision will come as a relief to Tory strategists, who are anxious that Ukip's hardline policies could attract right-wing supporters disillusioned with the party under Mr Cameron.

Although Ukip, which has 18,000 members and 240 branches, is only registering between 1 and 2 per cent in opinion polls, that could be enough to prevent the Tories picking up several marginal seats at the next election. According to one analysis, the Ukip vote may have cost the Conservatives up to 16 seats at the previous election.

Ukip's electoral high-point came in the 2004 elections to the European Parliament, when it picked up 16.8 per cent of the vote and won 12 seats.