The Labour sleaze scandal has only one victor: Saint Gordon

Budget week was a presentational triumph for the Chancellor, says Peter Oborne. Blair is mired in the ermine-for-loans scandal and Cameron has spectacularly failed to rise to the challenge Close friends of the Prime Minister say that he knows that the cash for peerages crisis goes very deep, and may even finish him off. But they insist that he is ‘determined to fight on, if at all possible’. In the face of formidable evidence to the contrary, the Prime Minister still believes that he is the indispensable man.

He was at it again on Tuesday, making a major speech, the first of a series of three, setting out his vision of foreign affairs. Tony Blair is enormously proud of what he has achieved on the international stage. He is sure that he has set a new tone for British foreign entanglements, as Gladstone did in the 1870s. He does not just believe; he knows for certain that he has put enduring human values back at the heart of British diplomacy, instead of the cynical and murderous self-interest of the Conservative years.

But Tony Blair looked unwell as he delivered this message. He read stutteringly, without passion or enthusiasm, from his script. He appeared distracted. His skin was red and blotchy and he sweated. His personal authority has not all gone, but it’s been terribly compromised. Many Labour MPs now speak of him with open contempt. Ian Davidson, the Member for Glasgow South West, compares the Blair faction to the Militant Tendency that nearly destroyed the Labour party in the 1980s. A growing number are publicly calling on him to stand down. Disaffected MPs plot quite openly, in full sight of party whips, against Tony Blair.

At the heart of the problems now facing the Prime Minister are three important deceptions. Downing Street has misled the Electoral Commission, the House of Lords Appointments Commission and the Labour party. The Political Parties, Elections and Referendum Act 2000 states that donations of more than £5,000 in a calendar year must be declared. The same rule does not apply to loans, so long as they are made on a strictly commercial basis.

According to the Downing Street defence, which is being smoothly orchestrated by the Lord Chancellor, these loans were above board and did not need to be made public. This claim is false. No bank or responsible commercial organisation would ever have loaned this kind of money to the Labour party, which has no assets to speak of and no means of repaying the debt. Least of all would they have made the loans at 2 per cent interest, as some of Tony Blair’s benefactors are reported to have done. The Electoral Commission has been deliberately misled.

Much the same applies to the House of Lords Appointments Commission. Its rules state that when Downing Street submits nominees for a peerage, all donations should be declared. It now emerges that No. 10 kept quiet about a number of soft loans granted to the Labour party by its mis cellaneous financial benefactors. This was not simply against the spirit but also against the letter of the rules. There is no doubt that this deception was deliberate. In at least one instance, an applicant for a peerage was encouraged by the Labour party to make a loan rather than a donation, presumably so that the money could be kept secret.

It is astonishing that No. 10 Downing Street should have been prepared to deceive independent public bodies in this way. Under previous administrations — whether Labour or Tory — deception of this nature and on this scale would have been so shocking that it would surely have led to the resignation of the Prime Minister without further ado. However, standards of integrity have fallen so far under the Blair government that this kind of conduct is simply taken for granted. Mr Blair and his closest aides have been caught out lying so often in the past that it no longer seems to matter. The third deception concerns the Labour party. Morally, this is by far the least grave of Tony Blair’s various offences, but politically it is the one for which he looks likely to pay the highest price. The Prime Minister and his inner circle, perhaps surmising that matters might not look too good if they came under wide scrutiny, kept their network of ‘loans’ and other arrangements private as much as possible. Not even Jack Dromey, the party treasurer, was aware of them. They were managed by a separate, Blair-inspired funding organisation.

This is extremely unusual, and marks a precipitate departure from generally accepted practice. During the 1979–97 Conservative government, party funding was absolutely regarded as a party matter. The prime minister was carefully insulated, a fact which enabled John Major to survive various party funding scandals in the 1990s. He was able to state, quite truthfully, that they were a matter for Central Office.

With New Labour it has been the other way around. Political funding has been a matter for the Prime Minister, something to be kept secret from the Labour party. This blurring of boundaries is wholly characteristic of Mr Blair’s personal and unstructured method of doing business. In its way it is just another manifestation of the ‘sofa government’ whose existence Lord Butler noted disapprovingly in his report on the origins of the Iraq war two years ago.

The former record producer Lord Levy seems to have been at the heart of all this. A bejewelled and cheerful figure, Levy established his credentials with Tony Blair when he organised the future Prime Minister’s ‘blind trust’ during the 1994–97 years of opposition. He seems to have carried the same principles which animated that blind trust — secrecy, reliance on an anonymous group of super-rich donors, attention to the letter rather than the spirit of the rules — into government. At one stage Levy’s power over New Labour fundraising was challenged by the late Henry Drucker, a highly respected and straightforward Oxford-based philanthropist. Drucker was soon seen off.

Theoretically, Levy reports to the Labour party. Matt Carter, the Labour party general secretary who resigned (but not suspiciously) last year, was aware of the loans. There has been neither sight nor sound of Carter over the last few days. He seems to have been very efficiently whisked away by New Labour heavies. Matt Carter is a young, faceless party bureaucrat, a member of a caste which has flourished during the Blair years. A few months ago a lobbyist friend in Washington rang me for information about Carter, who was apparently touting himself around the States. I was unable to help. Carter has now cropped up at the US lobbying forum Penn, Schoen & Berland. The eponymous Mark Penn was the polling genius behind Bill Clinton and is expected to play an intimate role running Gordon Brown’s election bid in 2009–10. In the meantime his highly professional company is advising Silvio Berlusconi on his reelection campaign in Italy.

Poor Matt Carter probably should not be held personally to blame. I dare say he simply lacked the experience of life or politics to ask the right questions, something which made him admirably suited for the role of Downing Street stooge. Lord Levy’s real relationship has always been with No. 10. His connection with Tony Blair is exceptionally strong. But it seems likely that his strongest and most regular relationship is with Jonathan Powell, the Downing Street chief of staff, a politically androgynous creature whose abiding home is the murky frontier between party and state. He has cropped up in every Labour funding scandal to date and — though he has not been publicly cited — there is no reason to suppose that he is not at the heart of this one as well.

Fundamentally, this cash for peerages scandal is the most powerful manifestation yet of the post-democratic political predicament which — as Helena Kennedy carefully diagnosed in her Power report and Professor Colin Crouch first identified in his masterpiece Coping with Post-Democracy — has become the established method of British government. Mrs Thatcher in her pomp brought some intimations of what this new system might be like, but Blair has converted it into a methodology. With political parties and institutions in collapse, power is now wielded by a narrow and self-serving corporate and political elite, often operating quite explicitly against the public interest.

This ugly system does not embrace New Labour alone. It extends right across the other two main parties. This has disastrous consequences. Neither the Liberal Democrats nor the Tories have proved themselves capable of fulfilling their democratic duty by asking the difficult and statesmanlike questions the occasion demands. This has been David Cameron’s first major test as leader of the opposition, and his performance has at best been useless. (Though not as embarrassing as that of David James, Michael Howard’s nominee for a peerage, who anticipated the Queen as early as last December by gazetting himself in the membership list of the Savile Club as Lord James, CBE.) The whole point of David Cameron — so he gave the country to believe during his inspired ascent to the leadership of the Tory party last autumn — was that he offered a fresh voice. Throughout last week, however, Cameron has defended the post-democratic regime. He has to all intents and purposes collaborated with Tony Blair by going along with the elaborate New Labour persiflage: that this week’s crisis is no more than a generic problem of party funding. Cameron has held back from asking the deadly questions: what were the terms, interest rates, repayment rates and security of the loans? Were they in writing? Into what bank accounts were they paid? Why were they kept secret? Why was the House of Lords Appointments Commission misled?

Cameron has been hobbled by two factors: the modernising orthodoxy that the party must not antagonise opponents, and the knowledge that the Tories have entered into dubious loan arrangements themselves. This is very disappointing. Cameron has only just become leader, and surely cannot be held responsible for deals struck by his predecessors, however discreditable. He should have turned his back on the Old Tories, been ruthless and gone for the Prime Minister’s jugular.

This act of political cowardice means that he entered into what amounts to a conspiracy against the British public on the part of all mainstream political parties. Only a small group of dissidents, led by the exemplary backbench Labour MPs Robert MarshallAndrews and Alan Simpson, are asking the searching and proper questions which this national crisis of trust demands. The Scottish National party and Plaid Cymru also deserve credit for passing the cash for honours case on to Sir Ian Blair, Commissioner of the Metropolitan Police. There is abundant circumstantial evidence that both New Labour and the Conservatives have infringed the 1925 Act of Parliament, which prohibits the sale of honours.

This week’s failure of guts by the Conservative party explains why, though Tony Blair’s personal rating has fallen through the floor, there has been no Tory poll benefit of any kind from what amounts to a first-class sleaze scandal striking at the heart of government. It may turn out that Cameron has made a fundamental mistake. His political strategy has been to position himself, rather than Chancellor Gordon Brown, as the true successor to Tony Blair. But that calculation failed to take account of one looming possibility: that Tony Blair’s reign might end in shame and disgrace.

Gordon Brown has recently been building himself up as a man of integrity; his allies present him as a political saint compared with his next-door neighbour. Brownites have been careful to let it be known that the Chancellor was the force behind Sir Gus O’Donnell’s recent advice to the Prime Minister on raising public standards. And on Wednesday he made certain that his powerful Budget contrasted sharply with the sloppiness and corruption in Downing Street. He, not David Cameron, is the massive winner from the stench emanating from No. 10.