'Cash for peerages' crisis turns personal

A furious row broke out last night between Gordon Brown and Tony Blair over the "cash for peerages" affair after renewed claims that the Chancellor provoked the crisis.

Mr Brown is said to have stormed out of a one-to-one meeting with the Prime Minister two weeks ago with the words: "You haven't heard the last about these peerages."

Shortly afterwards Jack Dromey, Labour's treasurer and an ally of Mr Brown, went public with his revelation that he had been kept in the dark over almost £14m of secret loans.

Two of Labour's lenders turned up the pressure on Mr Blair by giving details of how Lord Levy solicited the loans and helped to conceal them from an independent honours watchdog.

Speaking exclusively to The Independent on Sunday, Sir Gulam Noon, who lent £250,000, said: "They asked me for a loan - I would have given them money but they wanted to do the loan."

A spokesman for Chai Patel, also nominated by Mr Blair for a peerage after lending £1.5m, said that he had been helped by Labour to fill in forms sent to the independent House of Lords Appointments Commission.

"Michael Levy was the source of Chai's advice," he said.

A team of Metropolitan police detectives have begun an investigation into whether a 1925 law banning the sale of peerages has been broken.

Suspicions that Mr Dromey was "put up to it" by Mr Brown have been fuelled by an account of a furious row circulating among Mr Blair's most loyal allies.

One said: "There was a row about pensions reform - basically, Brown wanted to kill off the Turner report in his Budget - but Blair wouldn't let him and Brown threw one of his rages. He left the room saying, 'You haven't heard the last about these peerages'." Another senior Blair ally confirmed he had heard the same claim.

"I'm not sure about the words but that was certainly the inference."

Mr Brown's camp dismissed the claims as "preposterous", insisting that the Chancellor had never discussed the issue with Mr Blair.

"It is ridiculous that these people are trying to drag him into their mess," said a source close to the Chancellor.

The competing versions of events leading up to Mr Dromey's bombshell keep at fever pitch Labour's internal crisis over the funding scandal.

Charles Clarke questioned the treasurer's competence at a Westminster lunch last week, while Mr Dromey's wife, Harriet Harman was removed at the last moment from BBC 1's Question Time panel, leading to claims that she had been gagged by No 10.

Although the Home Secretary privately apologised to Mr Dromey, tensions remain high amid fears that the lenders could bankrupt Labour if they all demand their money back.

Meanwhile, the Conservatives were dragged into the row as the party's efforts to conceal its lenders unravelled after The Independent on Sunday revealed one of its mystery backers.

Michael Hintze, one of London's wealthiest bankers, channelled £2.5m to Tory coffers through an investment trust just before the general election. It is the largest loan to any political party so far revealed.

Mr Hintze, an Australian, was reported to have earned around £60m from his hedge fund last year. A well-known philanthropist, he was recently made a Knight Commander of St Gregory by Pope Benedict XVI.

David Cameron is refusing to follow Labour's lead in identifying its lenders despite calls for "utter transparency".

A parliamentary committee will defy a police request to defer its hearing on Wednesday into "loans for lordships".

The House of Commons Public Administration Committee will go ahead with its questioning of Dr Chai Patel and Sir David Garrard, who lent £2.3m.

A Scotland Yard spokesman said: "We would expect the criminal investigations to take precedence."

But a spokeswoman for the committee said: "We are conducting our inquiry. We are going ahead. It is for the police to conduct their inquiry."

- INDEPENDENT