The ‘sleaze’ crisis engulfing the prime minister deepened in a statement that stepped up the watchdog’s initial gathering of information into the controversy.
“We are now satisfied that there are reasonable grounds to suspect that an offence or offences may have occurred,” a spokesperson said.
“We will therefore continue this work as a formal investigation to establish whether this is the case.”
The announcement came after days of Mr Johnson, and other ministers, failing to deny that the Conservative Party, or a Tory donor, originally funded the lavish redecoration.
It is believed the party secretly approved paying a £58,000 bill as long as nine months ago – a payment then covered by a wealthy donor, according to a leaked email.
A former Electoral Commissioner has warned Mr Johnson may have broken electoral law if he received a gift or loan for the works and failed to declare it within one month.
And, last week, Dominic Cummings alleged his “plans to have donors secretly pay for the renovation were unethical, foolish, possibly illegal and almost certainly broke the rules on proper disclosure of political donations”.
In its statement, the Commission added: “We have been in contact with the Conservative Party since late March and have conducted an assessment of the information they have provided to us.
“The investigation will determine whether any transactions relating to the works at 11 Downing Street fall within the regime regulated by the Commission and whether such funding was reported as required.”
The watchdog has the power to issue a “disclosure notice” about its investigations, which could require the prime minister and the party to release documents.
If it fails to get the information it is seeking, an “inspection warrant” can be used to search premises – and individuals may also be required to attend interviews.
Separately, Mr Johnson may have to prove he has complied with the ministerial code – an issue complicated by the failure to appoint a new adviser on ministerial interests.
Downing Street has now announced that Lord Geidt, a Crossbench peer, has taken up the role – vacant since Alex Allan quit in protest at the failure to sack Priti Patel for bullying.
It said Lord Geidt would “begin by ascertaining the facts surrounding the refurbishment of the Downing Street flat and advise the prime minister on any further registration of interests that may be needed”.
No 10 has insisted the prime minister has now paid the refurbishment bill – above a £30,000 taxpayer allowance – but not said who paid it originally
The full money trail is likely to be revealed when an updated register of ministerial interests is finally released, possibly as early as this week.
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