Tory plan on funding threatens Labour

A battle over Labour's links with the unions has been triggered by a threat from the Conservatives to cap all donations to political parties at £50,000.

The move threatened to wreck the chances of a political consensus over cleaning up the system of political funding as the Prime Minister's adviser, Sir Hayden Phillips, delivered his interim report on the options for reform.

Sir Hayden was appointed by Tony Blair to defuse the row over "cash for peerages" and his report suggested he may come down against a £50,000 cap proposed by the Tories in his final report in December.

But the Tories warned they will ban big individual donations despite Labour's opposition.

Andrew Tyrie, David Cameron's most senior adviser on party funding, said: "The Conservative Party wants to act by consensus but we want to restore public confidence even more."

The £50,000 cap would cost Labour £8.8m a year, almost a third of its £28m average annual income, compared with £3.9m for the Tories and just £800,000 for the Liberal Democrats.