Contractor who lent Labour £1m quits over sleaze fears

The first head rolled yesterday in the Labour loans scandal when Rod Aldridge announced he was quitting as the head of Capita, the IT company he founded, to stop "spurious" allegations damaging its multimillion-pound contracts with the Government.

His resignation ­ the first high-profile victim of the row over Labour's secret £13.9m election fund ­ led to calls for Gordon Brown to take over early from Tony Blair to clean up Labour's image. The Chancellor yesterday distanced himself from Mr Blair who personally approved the loans scheme and nominated four of the donors for peerages.

Mr Aldridge was not proposed for any honours, but loaned £1m to the Labour Party at the request of Labour's fundraiser, Lord Levy, to help Mr Blair win a third term at a time when his company was engaged in more than £500m-worth of business from the Government. He was also a key donor for a city academy, and in the spring will chair a new youth volunteering project pioneered by the Chancellor.

Chris Grayling, the shadow Transport Secretary, tabled a series of questions for ministers about Mr Aldridge's financial connections with the Government 24 hours before he announced he was resigning to stop his company's reputation being questioned.

"There have been suggestions that this loan has resulted in the group being awarded government contracts. This is entirely spurious," he said. "Whilst anyone who is associated with the public procurement process would understand that this view has no credibility, I do not want this misconception to continue."

The IT group boasted of its influence across Whitehall, in spite of criticism over its contracts, and claimed to have a "core role" in the reform of public services.

Criticism of Capita projects included a damning report by the National Audit Office on its bid to create the database for the Criminal Records Bureau, which spiralled in cost from £250m to £400m; delays to a database to check on teachers, operated by Capita, which forced schools to close; and a computer system supplied by Capita for Individual Learning Accounts, which was found to be vulnerable to fraud, leading to massive losses. This week financial watchdogs slapped a £300,000 fine on the Capita Group, which runs the London congestion charge, for failing to spot or block fraudulent transactions.

In the wake of Mr Aldridge's resignation, Capita's share price dropped from 469 3/4p to 455p.

Mr Blair tried to draw a line under the row when he faced Labour's national executive committee at a private meeting this week. A report to Labour MPs from the meeting yesterday revealed that, behind closed doors, members of the NEC raised a series of damaging questions about "loans for peerages", including: why loans were asked for by Lord Levy rather than donations; why this change in fundraising was kept secret; and whether the Labour Party was solvent.

Yesterday Mr Brown put the blame for the row on Mr Blair, saying: "The Prime Minister is leader of the Labour Party and ... he has got to take responsibility for the whole position of the Labour Party's finances as well. "

He added: "I have never involved myself at any time in this business of political donations."

Some Labour MPs said the time had come for Mr Brown to take over from Mr Blair. "Rod Aldridge appears to have resigned to protect his company's contracts. I think this is far more serious than cash for peerages," said Harry Cohen, a member of the Campaign Group of Labour MPs. "Gordon Brown has got to be cleaner than Tony Blair to give us any chance of winning the next election."

He said he was worried that Lord Sainsbury, another major donor who also loaned £2m to the party, had gained his position in return for his cash support.

The Tories rejected Mr Brown's claims not to be involved. Mr Grayling said: "Gordon Brown has said that he didn't know about the loans issue and the financial links between Mr Aldridge and the Labour Party. Yet it now appears that Mr Aldridge has been hired to run the Chancellor's pet project and that his company is heavily involved with another of the Chancellor's favourite schemes ­ the Child Trust Fund. Mr Brown was also the man who ran the Labour general election campaign which Mr Aldridge part-funded. It beggars belief that the Chancellor knew nothing about what was happening."

In a further embarrassment for Mr Blair, Lord Levy was called to give evidence to a committee of MPs looking into allegations of honours for loans.

The House of Commons Public Administration Committee, chaired by Tony Wright, a Labour MP, will also question the Priory Clinics founder, Dr Chai Patel, and the property developer Sir David Garrard, who were both nominated for peerages shortly after they lent large sums to Labour.

The announcement came as a second cross-party parliamentary committee ­ the Commons Constitutional Affairs Select Committee ­ revealed it was launching its own inquiry into the way political parties are funded.

In his effort to draw a line under the sleaze allegations, Mr Blair yesterday appointed Sir John Bourn, the respected Auditor General, to advise him and senior ministers on breaches of the ministerial code. It follows the controversy surrounding the Culture Secretary, Tessa Jowell, and allegations relating to her husband, David Mills.

The contracts

* MARCH 2004 Contract to handle Customs and Excise recruitment.

* JUNE 2004 Contract to run information services for the Driving Standards Agency ­ worth £22m.

* AUGUST 2004 Contract to handle records management for the DWP ­ worth £70m

* OCTOBER 2004 Contract with the DFES to administer the National Strategies for Education, worth £177.5m.

* 19 SEPTEMBER 2005 Contract to deliver ITservices to the DWP ­ no value given.

* 15 DECEMBER 2005 Contract to administer the British Waterways pension scheme ­ no value given.

* 20 FEBRUARY 2006 £120m contract to represent the DTI over miners' injury liability claims.

* 20 MARCH 2006 Payroll provision for the Independent Police Complaints Commission ­ no value given.