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The Tory Party wiped out its debts by using offshore accounts holding millions of pounds in donations from secret foreign backers, it was alleged last night.

John Prescott, the deputy leader of the Labour Party, said the Tories had compensated for a "massive drop" in company donations in the UK by relying on "indefensible" money from sources they refused to reveal, many from abroad. "At the same time as they claim to be battling for Britain in Europe, the Tories are putting themselves in hock to secretive foreign businessmen," Mr Prescott told a seafarers' conference in Dublin.

The Tory party leadership has insisted that the money has come largely from small businesses which have have made new donations, more than compensating for 100 corporate donors which have been lost since the general election. Labour is planning to step up its assault on the Tory secret funding when MPs return next week from the Whitsun recess of the Commons. Colin Brown