Lord Levy: Lord Fix-it

Fundraiser, Middle East envoy, friend and tennis-partner-in-chief of the Prime Minister, Michael Levy faces his biggest challenge since trying to sell Alvin Stardust to the masses

One of the defining characteristics of the Blair administration has been its willingness – some would say its desperation – to look beyond the Labour Party for all that it needs to survive and prosper. From money and ideas to expertise and inspiration, the Prime Minister long ago realised the extent of the resources that could be tapped well away from the narrow confines of Westminster.

Whether you were the latest pop star, a multi-millionaire business person, a clever thinker, an even better networker, or just an old friend, if you had something to offer, then Tony Blair would be after you. The process was central to the creation of New Labour, and there is no more shining example of the sort of figure who has become an essential adjunct to this Government than the 58-year-old peer Michael Levy, whose qualifications even extend to being one of Blair's tennis partners. His elevation to Blair's inner circle parallels the rise to political prominence of Lord Falconer and Lord Irvine, also men who, to a great extent, have got where they are today through a long-standing personal contact with the Prime Minister.

While backbench MPs complain that they have been all but stripped of power and influence, and even the role of the Cabinet has been dissipated, Lord Levy, along with a handful of other unelected policy-makers, has come to occupy a role that is increasingly important to Blair. They guide his thinking across a range of issues (notably in Lord Levy's case, the Middle East), make contacts for him, help to boost the party coffers, and are just there for a man who seems to need much more reassurance than his poll ratings would imply.

Lord Levy does all these things, and more. But with his latest appointment – to the committee set up by Blair to vet the ethics of future donations to the Labour party – he has been landed with a job that threatens not only to compromise his independence but has revived an issue he hoped he could put the lid on.

As Labour's chief fundraiser, Lord Levy has a knowledge and understanding of the often discredited world of party donations that cannot be doubted. In that sense, Blair would argue, he is the perfect man for the job. Clearly lost on the Prime Minister, however, is the element of paradox here: how can a man who has spent years drumming up millions for Labour – causing his share of controversy in the process – also be a fit person to sit in judgement on the ethics of giving to the cause?

Party fundraising has become the albatross around Blair's neck. The Bernie Ecclestone affair, coming less than six months into Labour's first period in office, marked the end of the honeymoon period. The Hinduja scandal rumbled on for months, with the fact that it was the Dome that was contributed to rather than the party cutting little ice with Labour's critics. Then came the Lakshmi Mittal affair, in which a donation to Labour appeared inseparable from help the Indian businessman received from Blair in buying a steelworks in Romania.

There was a role for Lord Levy in all three episodes, but it is one in which he says he played no part – the recent donation to Labour by the pornographer and Daily Express proprietor Richard Desmond – that seems to have tipped the scales for Blair. Clearly uncomfortable at having to defend support from such sources, and publicly declaring that party fundraising had become his biggest headache, Blair decided to act. We need a committee to look into all this, he realised. And he knew just the man to head it.

Blair first met Michael Levy at a dinner given by an Israeli embassy official in 1994. Levy's background, so unlike his own, fascinated the would-be PM, and the two of them became friends and confidants.

Levy, born in 1944, had humble Jewish origins in the East End. He left school at 16 and became an accountant, gravitating towards the record industry. By 1973, when he was 29, he was setting up Magnet Records, whose highly commercial roster of artists included such unashamedly middle-of-the-road names as Alvin Stardust and Chris Rea. What the label lacked in credibility it more than made up for in turnover, and in 1988 Levy was able to sell the business to Warner Bros for £10m.

Levy was now in a position to put something back into the community that he had sprung from, and he did it by turning round the fortunes of the once struggling charity Jewish Care. His powers of persuasion were legendary. A man of immense personal charm, he has fundraised and entertained to the point where Jewish Care's £36m annual income puts it in the big league of Britain's charities.

It was the kind of transformation that was bound to impress Blair as he sought to effect something as dramatic in the Labour party. As Blair rewrote decades of Labour tradition by taking a positive rather than a suspicious approach to big business, Levy became a hugely important ally. In return, he enjoyed the frisson of power that came with the association, although he stopped well short of taking the step into politics itself. Given such access to Blair, and responsibility in return, why did he need to bother? Married with a son and daughter, and enjoying a comfortable life at his home in Totteridge in north London, Levy had what he wanted. It is there that Blair would stop off on his way back from his northern constituency for a quick game of tennis.

Lord Levy's roles have expanded over the years. His bread-and-butter is consultancy work. He fundraises for Labour. He does his work in the voluntary sector. And before he was given the task of cleaning up party donations, he had been appointed by Blair as his envoy to the Middle East in yet another example of how the Prime Minister prefers to bypass government agencies – in this case the Foreign Office – and take his advice from outside.

Which is not to say that Lord Levy has not worked wisely and assiduously on Blair's behalf. The natural sympathy he has with the Jewish cause is said not noticeably to have coloured his view of the terrible events that have unfolded in the region over the past 21 months. He prides himself on having just as good contacts with Yasser Arafat as he does with Ariel Sharon, and his diplomacy is of the highest order. "They are the elected leaders," Levy was quoted as saying last week. "And we have to work with them. But we have to look beyond them. We have to control the level of hatred that has developed."

Lord Levy likes to be in control, and he hasn't enjoyed the fallout from his latest appointment. It has thrust him much further into the public spotlight, and forced him to answer questions such as how he could justify accepting a £100,000 consultancy contract with an Australian property company that wants to set up shopping centres in Britain. ("That was a commercial deal, and there was never any question of government lobbying.")

Now the pressure is on him to remove any potential conflict of interest and step down from his role of Labour's chief fundraiser. That would be a blow both to the party and to Lord Levy, who badly wanted his ethics role but not at the expense of his other one. There's a lesson in all this, perhaps: you can flit around the edges of politics for only so long before you are dragged into its maw.