Andrew Grice: The Week In Politics

Mutiny brews as Blair's defiance threatens to shipwreck Labour

After Neil Kinnock stood down as Labour leader in 1992, Margaret Thatcher, who defeated him in two general elections, told him: "History will be kind to you." Two years earlier, people had said the same to her when she was forced out by her own MPs and cabinet. Now, ominously, Lord Kinnock uses the same words about Tony Blair and admits the Prime Minister's legacy will be tarnished by the "cash for honours" affair.

The "drip, drip" effect of the Metropolitan Police inquiry is in danger of turning into a torrent that sweeps Mr Blair out of office before his intended departure date in June or July. Some Labour backbenchers and ministers have had enough. They don't share Mr Blair's view that Labour's "trust problem" will disappear when he stands down. They fear that so much damage is being inflicted that Gordon Brown's promise to "clean up" politics would not be able to save the sinking ship. Mr Blair's predicament is very serious this weekend.

From the outside, the "cash for peerages" affair looks awful. From inside Downing Street, it looks different. Mr Blair remains confident that the inquiry will not result in prosecutions and is anxious to tell his side of the story. If he were able to speak now, he would probably argue that a discredited honours system, rather than any individual, is at fault - and that an outdated system does not mean a crime has been committed.

He suspects the investigation could have happened at any time since a 1925 Act banned the sale of honours after the then prime minister David Lloyd George flogged knighthoods and peerages. This explains why the Tories have been so quiet about the substance of the allegations. David Cameron's call for Mr Blair to stand down "in the national interest" was clever and well-timed, but he was careful not to throw stones because his party lives in the same glass house.

The system means that lots of players in the political world propose people for honours. Both Labour and the Tories have promised peerages to MPs who stand down to make way for "new blood". There is a constant search for new peers to keep up the party's numbers in the second chamber.

Lord Levy, Labour's chief fund-raiser, was one of many people in the party who suggested names. He has almost certainly put forward many more than have ever been formally nominated for honours. Some were Labour donors but, in No 10's view, that does not amount to "selling" honours.

The suspicion in Downing Street is that the police haven't found enough to make charges stick under the 1925 Act or the 2000 law on disclosing donations, and have seized on the possibility that some Blair aides did not hand over all the relevant evidence.

The arrest of Lord Levy and Ruth Turner, the No 10 director of government relations, on suspicion of conspiracy to pervert the course of justice - a more serious offence - has dramatically raised the stakes.

Again, from the outside the alleged cover-up looks terrible. From inside the Downing Street bunker, it feels as though the police have shifted the goalposts in a desperate attempt to get a result. Insiders say it would be odd for the police to charge people for covering up something that they couldn't prove is actually a criminal offence.

Yet Mr Blair is partly responsible for the crisis engulfing him. He has had 10 years to change "the system". I am sure he now regrets not moving faster on House of Lords reform and state funding of political parties, which could have prevented the controversy. With good intentions, he forced parties to disclose donations over £5,000 and banned the foreign donations that had helped to sustain the Conservative Party. But the 2000 Act left a gaping loophole - parties were still allowed to accept loans without having to disclose them.

In the run-up to the 2005 general election, Mr Blair was warned that the Tories would be able to outspend Labour. In a tight contest, it might have made the difference between victory and defeat. Lord Levy told him there was a way of matching the Tories, by taking loans from Labour-supporting businessmen.

Mr Blair agreed, knowing that the Tories - who invented the concept of the secret loan - were doing the same. Two wrongs did not make it right, but Labour was not the only party at fault.

The Electoral Commission, an independent watchdog set up under the 2000 Act, was spineless on the issue of loans. It should have told the two parties that secret loans were against the spirit, if not the letter, of the 2000 Act and made its advice public. Again, the current crisis would not be happening.

Labour is taking the blame because it is the governing party. The same thing happened to John Major's government, with Mr Blair then leading the charge over "Tory sleaze".

Now the wheel has turned full circle.

Mr Blair is anxious to carve out a legacy in his remaining months in office. Suddenly, his time is running out and he may suffer the same fate as Lady Thatcher, driven out by his own party before the time of his choosing.

a.grice@independent.co.uk