The Tories and the tycoon: Why Ashcroft is costing Cameron dear

His millions could swing scores of marginal seats, but the Conservatives' refusal to answer a simple question about his finances undermines their claim to the moral high ground

(PA)

It was the morning of 6 May 2005 and the Conservative Party was struggling to come to terms with the devastation of a third consecutive election defeat, but at least one senior Tory could detect a silver lining.

The party leader, Michael Howard, was preparing to take the blame for the shambolic campaign by falling on his sword, but for Belize-based Baron Ashcroft of Chichester, the operation represented the vindication of a political strategy that brought the Tories into bitter conflict with all their political opponents.

Along with two other colleagues, he had organised and funded a huge campaign to boost the Tory performance in a series of marginal seats across the country. Twenty-four out of the 41 targeted had been taken from Labour; 25 of the 33 candidates who won seats from Labour or the Liberal Democrats had benefited from the fighting fund and six more sitting MPs had held their seats.

"It soon became clear," he said of that post-election summary, in his memoir, Dirty Politics, Dirty Times, "that we had been wasting neither our time nor our resources."

Lord Ashcroft, a man who refuses to confirm that he pays taxes or is registered to vote in the UK, is utterly convinced of the impact his outlay, direct to grass-roots constituencies, had on the general election five years ago. Now, as deputy chairman of the party, he is both funding and spearheading a centralised campaign to repeat the trick – with more spectacular results – in 2010.

Seven years ago, as Mr Howard and several influential colleagues discussed rejecting a £2m Ashcroft donation because they feared it came with too many strings attached, the bemused peer noted: "In short, some senior Tories wanted my money but did not want me with it."

In David Cameron, it appears that Lord Ashcroft has finally found a leader who is happy to accept both. This is all the more remarkable given that, in the early months of Mr Cameron's leadership, he told allies that the party should no longer be seen to be so reliant on one man's wealth, and that he planned to marginalise Lord Ashcroft.

While the Tory leader's decision has been financially beneficial to his party (£4m of the peer's £10m in donations have come since Mr Cameron became leader), it is proving expensive politically. In the past week, his refusal to criticise Lord Ashcroft – or even come clean about his tax status – has undermined faith in his judgement and his ability to speak credibly on a range of policy issues, not least his mission to clean up politics.

"For years all parties have taken the same view that someone's tax status is a matter between them and the Inland Revenue," Mr Cameron said last week. "That needs to change ... anyone who wants to sit in the House of Lords or House of Commons has to be, or has to be treated as, a full resident UK taxpayer." His campaign for more openness from public representatives would carry more authority if it began within the walls of Conservative Party HQ.

A single tycoon could have a decisive impact on the result of the most closely fought election for almost two decades. It has already paid dividends. While the Tories' poll lead has been narrowing for a month, the gap remains healthier in the key marginals which will ultimately dictate who wins.

Cue anguished complaints from mainly Labour MPs – including many who survived the first Ashcroft onslaught – as their opponents outspend them massively even before the general election campaign officially begins, at a time when spending is not legally restricted. Their constituencies have already been "carpet-bombed" with extra leaflets, billboards, surveys and Tory magazines.

There is a downside, however, and it is troubling members of Mr Cameron's own party, as well as those at the sharp end of the Ashcroft effect.

"It's not just that there is a loophole allowing a money cloud to descend on a marginal constituency long before an election," said Labour MP Martin Linton, whose Battersea constituency – held with a tiny 163-vote majority in 2005 – is listed as an "early gain" on the Tory blueprint. "It is that the man taking most advantage of it has such questionable tax status and has refused to clarify that he has met the residence conditions he signed up to when he was made a peer."

Electoral law demands that all individual donors to British political parties must be registered to vote in the country. Although Lord Ashcroft gave the Government a solemn undertaking that he would become a UK voter and pay tax in the UK when his peerage was confirmed in 2000, there is as yet no evidence that he has done either.

All the Ashcroft donations to the Tories come via his wife, Susan – the biggest financial supporter of Mr Cameron's leadership campaign – or from his companies, notably Bearwood Corporate Services Ltd. But the Electoral Commission is engaged in a lengthy inquiry to ascertain whether Bearwood, which gave the Tories £1,600,893 in 2008 alone, was trading in the UK and thus eligible to donate legally. Another watchdog – the Information Commissioner, Christopher Graham – has now ordered the Cabinet Office to release the full details of the undertaking Lord Ashcroft gave concerning his tax status when he was made a life peer.

The complications with Lord Ashcroft are beginning to outweigh the benefits of his millions. He has become a de facto member of the shadow foreign affairs team, accompanying William Hague on official visits abroad.

In the bear pit of the House of Commons last week, Pendle's Labour MP, Gordon Prentice, who fears his seat is being swamped by up to £250,000 in support from Lord Ashcroft (only £82,000 of it officially registered), warned the Prime Minister that "the next election in my constituency is being bought by a tax exile". He added: "Does he agree that he needs me here, and that Pendle is not for sale?"

Gordon Brown gleefully accepted the chance to embarrass Mr Cameron in public over his domestic difficulties. "The Conservative Party cannot talk about new politics or transparency unless it answers the central question about the tax status of its chief fundraiser, Lord Ashcroft," he said. "The Information Commissioner has already said that the party has been 'evasive and obfuscatory' about the Ashcroft scandal. The Opposition have questions that they have to answer." They are questions that the Opposition prefers to dodge.

The party's official line is that the tax affairs of such a central figure are a private matter. When the Tory grandee Sir George Young said Lord Ashcroft was actually a "non-dom", paying a nominal UK tax bill but allowed to avoid any levy on overseas assets, the Tories quickly said he had "mis-spoken". The unhelpful "clarification" came only days after Mr Cameron himself had said it was no longer acceptable for parliamentarians to regard their tax affairs as a private matter between themselves and the tax authorities.

"I have no objection to the marginals strategy, but the Ashcroft issue is overtaking everything else," one senior Tory said yesterday. "This has gone on for 10 years. I can't believe Michael [Ashcroft] is doing anything wrong, so I fail to see why we can't just put it to bed now. If we don't, it will contaminate the whole election campaign."

It is not only a matter for Lord Ashcroft. A veteran of the Howard regime said the saga was beginning to call Mr Cameron's judgement into question. He said: "David has done very well in convincing the country that we have changed; his narrative on cleaning up politics is compelling. But on the Ashcroft issue, he appears to have a blind spot. It is not just appearing as if we have something to hide; it is appearing beholden to a wealthy man. It undermines everything we are trying to do."

The long-term problem caused by support for a selected group of constituency parties came as Mr Cameron received a shocking reminder of his troubles with grass-roots activists elsewhere. The abrupt resignation and reinstatement of Joanne Cash as the Cameroonian A-list candidate in the Westminster North seat, following a clash with constituency chairman Amanda Sawyers, was a rerun of the "Turnip Taliban" revolt that almost removed fellow leadership loyalist Elizabeth Truss in West Norfolk. It represented another direct challenge to Mr Cameron's authority, his policy of promoting women, gays and ethnic minority candidates in key seats – and his judgement on imposing this policy on unconvinced and hostile activists. Again, a disastrous revolt was narrowly avoided, but the leadership lives in fear of further conflagrations as the election gets closer.

As the increasingly restless right-wing magazine The Spectator complained last week: "Perhaps most worryingly, [the Cash affair] has revealed how Cameron's office lacks someone who can sense political trouble coming and defuse it. If this post is not filled before the phoney war turns into the real war of the election campaign, even more trouble could lie in store."

If Mr Cameron ever thought he could cruise to victory on the back of a healthy poll lead, a miserable post-Christmas hangover has proved otherwise. Party loyalty might force the fundamentalists of Westminster and Norfolk into line, but the Ashcroft affair will not go away. And as long as it remains unresolved, the PM-in-waiting will be hobbled by question marks over his ability to make the most significant judgement calls.

Taxing times: Does he or doesn't he? What the Tories say

Anyone who wants to sit in the House of Lords or House of Commons has to be... a full resident UK taxpayer

David Cameron, Conservative leader

David Cameron has called for all members to be treated as if they're fully resident... Lord Ashcroft has said that causes him no difficulty at all

William Hague, Shadow foreign secretary

So far as I know, he has fulfilled all of his obligations being a member of the House of Lords. I dare say that if you get his lordship on the programme, he will be very happy to answer for you

Eric Pickles, Conservative Party chairman (on the Today programme)

Sir George doesn't know Lord Ashcroft's status. He was making the comparison that the Labour Party face questions about their donors

Conservative spokesman, explaining that Sir George had 'mis-spoken'