Conservatives embroiled in new 'cash for peerages' row

The honours system was branded institutionally corrupt last night after a House of Lords watchdog raised serious concerns over donations of more than £7m made by four new Conservative peers.

The honours system was branded institutionally corrupt last night after a House of Lords watchdog raised serious concerns over donations of more than £7m made by four new Conservative peers.

The House of Lords Appointments Commission, which is in charge of approving peerages, privately questioned whether the donors would have qualified for peerages "if they had not given any money". Last night a Liberal Democrat peer said the system was institutionally corrupt and should be urgently reviewed.

The four Tory businessmen are expected to take up peerages this month. The scale of their donations to the Conservative Party is far higher than previously thought, and prompted the commission to question whether the party donors "could have been taken seriously" if they had not handed over cash.

The businessmen are Irvine Laidlaw, Greville Howard, Leonard Steinberg and Sir Stanley Kalms. Papers seen by The Independent show that Mr Laidlaw, a millionaire tax exile, loaned the Tories £500,000, on top of donations of almost £3m. Iain Duncan Smith, who nominated all the Tory peers, received consultancy fees of up to £100,000 from another nominee peer. Mr Duncan Smith had acted as consultant to his engineering firms.

It had been previously thought that Mr Laidlaw, who plans to return to the UK for tax purposes, had given £1.5m to the Conservatives. At the time his peerage was approved he had not recalled his £500,000 loan. There is no suggestion that Mr Laidlaw, who will enter the House of Lords in 11 days, or any of the other Tory peers, have acted improperly or broken the rules. But their nomination has raised concerns about the way the honours system operates.

Mr Howard, a Eurosceptic and member of one of Britain's grandest aristocratic families, will enter the Lords next week. Hehas donated £22,000 to the Tories, of which £6,250 was for Mr Duncan Smith's 2001 campaign to become Tory leader. He also paid Mr Duncan Smith consultancy fees of up to £100,000.

The payments, of £25,000 a year in the four years until Mr Duncan Smith became Tory leader, were for consultancy to two engineering firms, Wicksteed and Fortress Holdings, run by Mr Howard. Mr Howard did not have to declare the payments to the Lords watchdog because the rules require people nominated as peers to declare only donations to a political party.

The Liberal Democrat peer Lord Oakeshott of Seagrove Bay said yesterday that the public had a right to know exactly how much new peers had given to a party or a politician, including salaries. Lord Oakeshott, who has introduced a Bill to Parliament banning tax exiles from gaining peerages, said the honours system should be transparent. "This shows yet again the appointments system is institutionally corrupt. Donations should be fully and publicly disclosed," he said.

Four out of five Tory peerages nominated in the last honours list were given to wealthy party donors. Papers submitted by the Tory whips' office to the appointments commission show that Mr Steinberg, a philanthropist and founder of the betting-shop chain Stanley Leisure, gave the party £3.2m. Sir Stanley Kalms, the Dixons millionaire, who was introduced to the House of Lords this week, gave the party £1m "in kind", such as air travel.

Within days of Michael Howard becoming leader of the party, the Tory whips' office certified that the businessmen's donations were not "directly or indirectly associated" with their peerages.

A Tory spokesman said the peerages had "gone through the normal channels", adding: "These nominations went before the relevant commission. It is not normal practice that we comment on these matters."