Revealed: Labour's scam

MPs say they were threatened over supplying funds for party offices

New Labour MPs have been asked by party officials to take part in an illegal "sting" to defraud the taxpayer of up to pounds 500,000.

The Independent has been told that some new MPs elected in the 100 marginal seats targeted by Labour have been approached by party officials demanding a pounds 5,000 "contribution" to help pay the salaries of full-time local political agents.

But the body-blow to Labour's anti-sleaze image came from the punchline proposal; that the MPs could get the cash from their pounds 47,568 Office Costs Allowance - the tax-free allowance for MPs' parliamentary work.

Senior Labour MPs said last night that they were staggered that the party could get involved in such an operation when Tony Blair promised only last month, in the party election manifesto: "We will clean up politics."

The demands for "money with menaces" have come from regional party offices and in some cases from a senior official at Labour's national headquarters in Westminster. Expenses allowances are only paid - and financed by the taxpayer - on the legal understanding that they are used exclusively for "office expenses incurred in connection with a Member's parliamentary duties".

On that same understanding, the payments are not taxed by the Inland Revenue. If the money was improperly claimed - for example, to be diverted to pay for the salary of a party political agent - both the Commons and Inland Revenue would be defrauded, with the taxpayer losing on both counts.

But The Independent was told that some new MPs were petrified by the request. One said it amounted to "blackmail" - pay up, or else. The implicit threat was that if they did not play ball with the powerful party machine, they could face the risk of deselection as candidates for the next election - or, at the very least, "lose the love" of regional party officials.

Few of the MPs wanted to pay the money, and they will be delighted by today's Independent report - because it will force the party to repudiate the exercise as the work of naive and "over-zealous" officers; the customary escape clause from embarrassing gaffes.

However, while one MP conceded that the officials could be "wet behind the ears", another said the exercise could only have been mounted by party headquarters, and if the target was to raise pounds 500,000 then it could only have been sanctioned at a very high level in the party. "This is so clearly outside the rule, that in the post-Nolan era it is quite simply barmy," he said.

But the same MP conceded that MPs on both sides of the Commons were known to be exploiting a "grey area" of the Office Costs Allowance - making "contributions" towards the costs of local party offices "for parliamentary purposes" when the money was effectively being used as a subsidy for party offices.

In the last Parliament, Tory Central Office ran an exercise to ask local constituency parties to get their MPs to make such payments as a means of cutting the party's overheads.

The Office Costs Allowance is supposed to be used for "the cost of equipment, and secretarial and research assistance", including office expenses like rent, heating and lighting bills, or even "an appropriate proportion of domestic costs where an office is contained within the Member's home."

There is nothing to stop an MP employing a spouse, and a number of MPs do so, but there is a complete bar on the allowance - or any of the Commons facilities - being used for party political purposes. MPs are currently paid a salary of pounds 43,860.

Tony Blair also said in the Labour manifesto, however, that part of the exercise to "clean up politics" would include a move to "put the funding of political parties on a proper and accountable basis."

If that is done, it would ease the pressure on the party machines - Labour, Conservative and others - to cut corners.

Lord Nolan's Committee on Standards in Public Life is expected to be given a reference on the funding of political parties later this year, with a request for recommendations. But it was pointed out last night that Lord Nolan had already set out a series of "principles of public life" that would be contravened if the Labour scheme succeeded - raising the possibility of an investigation by Sir Gordon Downey, the Parliamentary Commissioner for Standards.

Andrew Marr on Labour's

first month, page 23