Tory MP took £5,000 from disgraced director

Edward Leigh, the Tory chairman of a powerful public spending watchdog, is considering handing back a £5,000 donation from a disgraced businessman after an investigation by The Independent on Sunday.

His move came after it emerged that Mr Leigh, chairman of the Commons Public Accounts Committee (PAC), was given £5,000 for his election "fighting fund" by Lincoln Fraser, a former bankrupt who has been disqualified from being a director for four years. His former finance company, Imperial Consolidated, went into administration earlier this month owing investors up to £200m.

Mr Fraser was struck off in July last year, shortly after the election, over the collapse of another of his former businesses, involving a hotel in Morecambe, Lancashire.

Mr Leigh, a barrister and leading member of the Tory right, conceded last night that his Gainsborough constituency association would now have to consider returning the money.

He admitted the donation was "unfortunate" given his role as chairman of the PAC, which is responsible for subjecting all government spending to tough scrutiny and for following up investigations by the National Audit Office.

"I would rather, with hindsight, that the association hadn't received money from someone who was subsequently struck off," he said.

The disclosure will embarrass the Tory leader Iain Duncan Smith, who has sought to attack Labour recently over the "cash for favours" allegations involving Labour's business donors.

Last night, Tom Watson, Labour MP and Home Affairs select committee member, said Mr Duncan Smith should investigate the donation immediately, since it could "raise eyebrows" about Mr Leigh's position on the Public Accounts Committee.

He added: "Clearly, as chairman of the PAC, Edward Leigh will also want the opportunity to distance himself from the allegations involving Mr Fraser."

The £5,000 was given by Mr Fraser and his long-term partner David Willerton, who are both Conservative Party members, after an appeal for the constituency's election fighting fund which had eventually raised £16,000. Only £8,000 was spent on the election, and the rest kept by the local party.

A spokesman for Mr Fraser said he had met Mr Leigh "two or three or possibly four times" at local party functions, but had never asked for favours or help. "He has never met Edward Leigh privately ... and has never been to Edward Leigh's surgery," he said.

Although the IoS first reported Mr Fraser's problems early last year, Mr Leigh insisted neither he nor his association knew of his problems until Mr Fraser was disqualified as a director last July.

He insisted the local party could have had no way of knowing that Mr Fraser had been a bankrupt in the mid-1990s, until he settled his debts, or that Imperial Consolidated had been sued by a Syrian arms dealer over an $8.5m (£5.5m) debt as one of a series of court cases it was involved in.

Mr Fraser's bankruptcy came after he abruptly walked out as manager of the Midland Grand Hotel, an Art Deco landmark in Morecambe, in July 1995 just as a winding-up order was made against his hotel management company over debts of £117,000.

According to the Lancashire Evening News, "Guests were told to leave the hotel ... people arriving were turned away. They were told the hotel's managers had left and the building been stripped of bed linen."

Two months ago, administrators in the offshore tax haven of Grenada took control of a private bank which was part of Imperial Consolidated's string of 11 subsidiaries, known as Imperium Bank, and appointed PricewaterhouseCoopers to review its finances.

Last year, after Mr Fraser was struck off, the Insolvency Service said the complaints against Mr Fraser and his then co-director Jared Brook included trading "with knowledge of insolvency to the detriment of its trade creditors"; failing to keep or hand over adequate accounts; writing cheques without the money to pay them; and allowing direct debits and standing orders to go unpaid.