Top Tories row over £500,000 gift and millionaire's jet

Conservative leader Michael Howard has returned a donation of £500,000 to Lord Ashcroft, the party's biggest donor, after the peer said that the Tories could not win the next election, it was reported last night.

Conservative leader Michael Howard has returned a donation of £500,000 to Lord Ashcroft, the party's biggest donor, after the peer said that the Tories could not win the next election, it was reported last night.

But the report provoked an immediate and acrimonious row in the upper echelons of the party.

Senior party sources suggested that the returned cash was a "routine" repayment of an existing loan, but that was rejected by friends of the peer. They told The Independent on Sunday they suspect it was meant as a deliberate snub. The party's former treasurer has fallen out with Lord Saatchi, its current co-chairman, over how to target resources in the coming election.

A friend of the peer's said: "Maurice Saatchi has been going around saying that we can win, and when cornered says, 'OK, a hung parliament'. Michael Ashcroft just thinks it would be better to target resources at marginal seats. It's strange to receive this 'repayment' when only recently Michael Howard asked for the use of a private plane during the campaign and a £2m loan facility until April 2006."

Relations between Lord Ashcroft and the Tory high command have been strained since Mr Howard became leader. A member of the Shadow Cabinet was quoted last night as saying: "There is a deal of suspicion about Ashcroft, a feeling among the hierarchy that he has been trying to exercise leverage and establish influence." A spokesman for the party declined to comment on the row.

Meanwhile Mr Howard's hopes of landing a blow on Labour on the issue of immigration were undermined when he admitted that his grandfather probably entered and lived in Britain illegally.