Andrew Grice: Flogging a dead horse? No, Mr Cameron, it's still running

Inside Politics

On election night in 2005, Lord Ashcroft cut a lonely figure at Conservative Party headquarters. As the results came in, he sat alone in front of a television screen, scribbling down figures on a pad, most definitely not part of the party's high command.

Although the Tories were heading for an inevitable third defeat running, Lord Ashcroft had something to smile about. His personally-funded operation in the marginal seats had paid dividends in about 25, giving the party a stronger platform for the following election. Party treasurer when his friend William Hague was Tory leader, he had been kept at a distance by his successors Iain Duncan Smith and Michael Howard. The Tories' performance in the marginals in 2005 only fuelled his desire to run an even bigger operation in them next time. This gave Mr Howard's successor David Cameron a headache. The billionaire of Belize was not going to go away. Mr Cameron decided to hug him close, bring his freelance operation under the party's wing and make him deputy Tory chairman. "It was a classic case of having someone inside the tent, pissing out," one Tory insider recalled yesterday.

So Mr Cameron hoped. In the past week, it has looked as though Lord Ashcroft was having the opposite effect. The controversy over his tax status dominated the headlines after he admitted on Monday that he was still a non-domicile who did not have to pay tax on his foreign income 10 years after promising to take up "permanent residence" in Britain as a condition of becoming a peer. Although there is no suggestion that he acted illegally, he later persuaded the authorities to accept that he would be a "long-term" resident, enabling him to remain a non-dom.

It has been another lost week for the Tories. Mr Cameron's impressive speech to the Tories' spring conference last Sunday steadied nerves. But not for long. This was "education week" on the party's election grid. If you haven't noticed because of all the Ashcroft headlines, you are not alone. "I didn't know that," one Tory MP confided yesterday.

A frustrated Tory leader told journalists on Tuesday that they were "flogging a dead horse" over the Ashcroft saga. But this horse has legs, and it is still running. On the eve of an election, it is reinforcing the Tories' image as a party of and for the rich far better than Labour could ever do.

Although Mr Cameron apparently didn't know about Lord Ashcroft's tax status until the past month, the affair raises questions about his judgement – and that of the shadow Foreign Secretary. Mr Hague lobbied hard to secure the Ashcroft peerage. Either Lord Ashcroft did not tell him the whole picture about his "long-term" residency negotiations or Mr Hague has been lying to us since. I don't believe Mr Hague is a liar.

But looking back at his media interviews, it seems that Mr Hague has misled us. I remember watching him on the BBC's Andrew Marr Show last November. Asked whether Lord Ashcroft now paid tax in Britain, Mr Hague replied: "My conclusion, having asked him, is that he fulfilled the obligations that were imposed on him at the time that he became a peer." He added: "I imagine that [paying taxes in the UK] was the obligation that was imposed on him."

The implication was that the deputy Tory chairman was paying the same taxes as you and I – although when you read his words carefully Mr Hague didn't actually say that. I took Mr Hague's words at face value and wrote a story saying the Tories had finally confirmed Lord Ashcroft was paying tax in Britain. Which he is; it is just not the whole picture.

I didn't receive a complaint from Tory HQ. Yet it contradicted Sir George Young, the shadow Commons Leader, when he told the BBC's Newsnight programme last month: "He [Lord Ashcroft] is in the same position as a number of Labour peers who are non-domiciled and who fund the Labour Party." A Tory spokesman said then: "Sir George doesn't know Lord Ashcroft's tax status." Really? A damn good guess then.

The Tory leader is at his best when his back is to the wall. It is now. There are signs of his Praetorian Guard distancing him from Lord Ashcroft and even Mr Hague, who seems to have discovered the peer's non-dom status about two months ago. The lesson of this week is surely that a new system of MPs' expenses will not be enough to restore public trust in politics. Reform of the way parties are funded is a must too.

The Electoral Commission, which cleared Tory donations by Lord Ashcroft's Bearwood Corporate Services this week, would like the next government to make an early start to sort out party financing once and for all. Despite all the grand talk about cleaning up politics, I doubt it will happen.

Labour doesn't want to impose further state funding – even though public controversy could be limited if parties had to recruit new members and small donors to get it. And it suits the cash-rich Tories politically for Labour to be increasingly dependent on trade union money. Yet the Ashcroft affair is a salutary reminder of the dangers of our system, and the rich donors still at the heart of it.