Top Labour official quits over secret donations scandal

On the day that he tried to mount a political fightback, Gordon Brown suffered another crushing blow when Labour's top official resigned over a scandal involving secret donations to the party.

On the day that he tried to mount a political fightback, Gordon Brown suffered another crushing blow when Labour's top official resigned over a scandal involving secret donations to the party.

The Prime Minister faces a series of questions over how much he knew about a property developer who was allowed to use three associates to avoid disclosing his identity when he donated a total of almost £600,000 to Labour.

Peter Watt quit as Labour's general secretary after taking legal advice about his role in allowing David Abrahams, a property developer in the North-east, to use colleagues Janet Kidd and Ray Ruddick and solicitor John McCarthy to make the gifts on his behalf.

There was gloom among Labour MPs last night that Mr Brown's attempt to reassert his authority after a disastrous week had been scuppered by a potentially damaging scandal that echoes the "cash for honours" affair which destabilised Tony Blair.

The Prime Minister's problems deepened when the latest monthly poll by ComRes for The Independent gave the Tories a huge 13-point lead over Labour, their biggest for 19 years.

At his monthly press conference today, Mr Brown will face questions about what he knew about the secret donations and whether they were the tip of the iceberg. As officials at Labour headquarters frantically checked its list of donations last night for other possible breaches of the rules, there was speculation that a fourth person was used by Mr Abrahams to make a disguised donation.

Mr Watt fell on his sword and was not sacked, but Brown allies hope his swift departure will allow Labour to draw a line under the matter. However, the Electoral Commission watchdog is investigating whether the subterfuge was against the law. Mr Abrahams is also believed to be behind a successful bid for planning permission for a multimillion-pound business park near Durham. The application was submitted by Ms Kidd and Mr Ruddick.

Mr Watt resigned after meeting members of the party's ruling national executive committee (NEC). He admitted knowing about the ruse but not that it was in breach of the rules on donations. He said yesterday: "I was aware of arrangements whereby David Abrahams gave gifts to business associates and a solicitor who were permissible donors and who in turn passed them on to the Labour Party. I believed at the time my reporting obligations had been appropriately complied with."

He added: "I was advised that, unbeknown to me, there were additional reporting requirements. Once I discovered this error, I immediately notified the officers of the NEC. I take full responsibility for the Labour Party's reporting obligations."

Mr Watt, who became Labour's general secretary in 2005, was well regarded in Labour circles. "He will be a huge loss," said Lord Gould of Brookwood, Mr Blair's former pollster. "He was an outstanding general secretary and is a man of impeccable integrity."

George Osborne, the shadow Chancellor, said "serious questions" remained unanswered about "this murky affair". He added: "If the general secretary knew, when did the chairman of the Labour Party and the Prime Minister first find out about how the money was being given?

"Everything Gordon Brown promised about his premiership – competence, honesty and change – has been blown away in the last few weeks."

Vince Cable, the acting Liberal Democrat leader, said many more questions needed to be answered. His party claimed that Mr Watt had been warned in an email from the Electoral Commission last July that the parties must not allow donors to use agents "as an attempt to evade the controls on permissibility and transparency".

Jack Straw, the Justice Secretary, said internal Labour investigations were under way into how Mr Abrahams' donations came to be accepted. He insisted that the Prime Minister "did not know" about them.

Dianne Hayter, the NEC chairman, said that the executive, including the Prime Minister, did not know about the transaction. "It is an extraordinary tale as well as exposing unacceptable practices," she added.

Figures from the Electoral Commission show that over the past four years, Mr Ruddick has donated £196,850, Mrs Kidd £185,000 and Mr McCarthy £202,125.

Baroness Prosser, a former Labour treasurer, said it was "daft" to take the donations and blamed party officials for not doing more to check them.