DRY YOUR EYES MATE....
Police probe into 'government contracts for donations'
SCOTLAND Yard is to investigate claims that multi-million-pound government contracts were handed out in exchange for donations to the Labour Party.
In a dramatic widening of the 'loans-for-peerages' inquiry, Metropolitan Police commanders have extended the scope of the inquiry that has shaken Tony Blair's government. They want to establish whether anyone who donated money to Labour was "rewarded" with lucrative government business.
The opening of a new front in the investigation has triggered a massive expansion in the police manpower being dedicated to the affair.
Sources at the Met have told Scotland on Sunday that almost 300 police are assigned to the case, either full or part-time. They have been tasked with trawling through records of the thousands of contracts issued to private companies by government departments every year.
It has also emerged that plain-clothes detectives have entered the Cabinet Office in Whitehall to remove documents relating to the award of peerages.
Officers from the Specialist Crime Directorate talked to officials at the Ceremonial Secretariat within the Cabinet Office a few yards from Downing Street. The unit co-ordinates policy and recommendations for honours and processes nominations.
The remarkable developments have underlined the Met's determination to conduct a thorough investigation into the allegations, originally sparked by a complaint from Scottish National Party MP, Angus MacNeil.
Police sources last night warned that Tony Blair himself "should expect to be visited" - particularly as a number of his aides have made it clear that the Prime Minister was central to the Labour operation to squeeze secret loans from businessmen who he later nominated for peerages.
The police operation 'went nuclear' on Thursday, when former government adviser Des Smith was arrested under the Honours (Prevention of Abuses) Act 1925.
Smith, an adviser to the body pushing forward Blair's flagship city academy scheme, sparked concerns over the honours system when he told an undercover reporter that financial supporters could expect to be rewarded with a peerage or a knighthood.
Sources close to the investigation last night claimed that Smith could be offered immunity from prosecution if he gave prosecutors full details of any wrongdoing. Opposition parties claimed the move could cause further turbulence, as the Attorney-General, a Labour Cabinet minister, would make the ultimate decision on whether immunity could be granted.
However, it is the extension of the investigation into contracts which represents the most dramatic development in the operation, with potentially explosive consequences for the Blair government.
The police will also need to move beyond the 1925 Act and investigate under alternative corruption legislation.
The Prime Minister has consistently faced complaints that his "cronies" were well-rewarded for supporting his party or his most favoured projects, often with peerages or other honours. But a
widespread investigation into allegations of favouritism in the allocation of multi-million-pound contracts would open Labour chiefs to further unwelcome scrutiny over how they fund their party.
A number of businesses run by Labour donors have won government contracts in recent years.
Three years ago, Scotland on Sunday revealed that Paul Drayson's company Powderject won a government vaccines contract after he had donated £50,000 to Labour. He subsequently won a huge smallpox vaccine contract and was eventually made a Labour peer following further donations, although there is no suggestion of any corruption in his activities.
Weber Shandwick, a firm with strong links to Labour, gave the party £17,000 and was later awarded a £3m contract to persuade business to back the government's city academy programme. Again, there is no suggestion of any impropriety.
"The cash-for-contracts element of this is at an early stage," a senior source close to the investigation told Scotland on Sunday. "But the Met feel confident that they will bring cases to answer."
The number of officers employed in the peerages investigation now ranks alongside other major police inquiries. At the height of the Soham murder investigation, there were 478 officers involved.
The affair has led to growing fears in Blairite circles that it could deter wealthy philanthropists from sponsoring the controversial city academy scheme. Under the programme, private sector interests are donating millions of pounds to help fund state schools in England.
One of those donors, Sir Peter Vardy, spoke yesterday about fears that the cash-for-peerages affair could deter such donors from getting involved.
"If the initiative is sunk and put below water because of this cash for honours it will be an enormous shame to the generations of young people who need a much better education than they are getting at the moment," he said.
Sir Peter, whose Emmanuel Schools in the north of England have attracted controversy over claims they teach 'creationism', conceded that some backers may have got involved in the programme in order to get an honour.
"I think it is very disappointing. If that is the case then they have missed the mark of what these academies were all set up for. I think it brings the whole honours into disrepute," he said. "They shouldn't be building the schools if all they are doing it for is to have an honour."
Amid the escalating furore, the SNP MP who sparked the investigation joined forces with the former sleaze-busting MP Martin Bell to demand a moratorium on future honours until confidence in the system has been restored.
Angus MacNeil called on Blair to freeze all appointments to the House of Lords until the matter has been fully investigated.
He said: "Instead of hiding in the Downing Street bunker, the Prime Minister has to acknowledge the full seriousness of the position he is now in. There is a total collapse of confidence in the integrity of his government and a widespread belief that honours are bartered around like second hand cars.
"Tony Blair is now the Arthur Daley of Westminster politics."
Bell warned that the 'corruption' surrounding Blair's government was worse than that afflicting the previous Conservative administration.
"I doubt if even now the Prime Minister and indeed the Conservative Party recognise the extent to which they have brought politics into disrepute and it is high time that they did."
The discovery of an arcane Act has transformed the cash-for-peerages embarrassment into a full-blown crisis which threatens Tony Blair
THEY are less than a mile apart. Downing Street and New Scotland Yard are separated by a tight network of picturesque London streets and centuries of political convention. A mischievous political complaint over "cash-for-peerages" allegations by an unknown Scottish National Party MP was hardly going to disrupt the happy and productive arrangement between these two pillars of the establishment.
This was Westminster logic at the beginning of last week. By yesterday, however, everything had changed. The Met had made a dramatic arrest. And at Westminster, a government which had attempted to laugh off the affair a few weeks earlier, was no longer wearing a smile. Panic has set in.
"There must be some obscure SNP researcher somewhere just clapping himself on the back all the time," a Labour backbencher observed last night of the Nationalists' original approach to the Met, which prompted the investigation under the Honours (Prevention of Abuses) Act 1925. "I can only compliment him, whoever he is. It seemed a neat way of embarrassing the government, but nothing more than that. But I was only worried that it might embarrass us - not throw us into uproar."
Tony Blair's aides furiously deny it, but 'uproar' is an accurate description of the mood in Number 10 during this last tumultuous week.
It had been going as planned. The Prime Minister, eager to regain the initiative after a difficult few weeks, had greeted health trust chief executives in Downing Street for a summit on the financial crisis in the NHS. But all plans had been immediately overshadowed on Thursday afternoon as the news came through that former government adviser and headteacher Des Smith had become the first person to be arrested as part of police inquiries.
The hapless Smith, an adviser to the body pushing forward Blair's pet 'city academy' scheme, had boasted of his access to Downing Street, claiming financial supporters of the academies could expect to be rewarded with honours. For the police, his arrest was a sensible starting point.
It was his exposure, following a particularly self-aggrandising outburst to an undercover reporter, that sparked the original concerns over the integrity of the system.
A measure of Number 10's concern last week came with the immediate response: denial. "Where are the allegations about the politicians in all of this?" one source close to Blair protested. "This man [Smith] appears to have been talking entirely for himself. The type of honours he was bandying about are generally not even in the gift of politicians. You should not assume that this will involve the Prime Minister."
It is New Labour crisis management par excellence: first, deny any suggestion of a problem for the party; and, at all costs, keep the Prime Minister out of it. But the problem for the government, and the issue that has propelled a frustrated Downing Street into a tailspin during the past few days, is that neither of these basic demands can be satisfied.
The government is facing the first criminal investigation into allegations of peerages for sale for almost 80 years. Scotland on Sunday reveals today that the police investigation that began with a staff allocation of less than 20 officers has now been extended into one encompassing almost 300.
Its breadth is expanding by the day. Plain-clothes detectives have marched into the Cabinet Office, which adjoins Downing Street itself, to remove documents relating to the award of peerages as part of their investigation.
Downing Street sources last night conceded that Lord Adonis, the former Number 10 aide, turned education minister and an architect of the specialist schools scheme, is facing a grilling from the officers conducting the inquiry. Meanwhile, Scotland on Sunday has learned that police are widening their investigation to examine allegations of so-called 'cash-for-contracts', with the government accused of handing lucrative public sector deals to party donors.
Earlier fears that the high-profile nature of the inquiry could deter future financial contributions from would-be supporters - of Blair's party or his favoured projects - suddenly appear secondary. The spectacle of detectives trampling through the workings of Blair's government threaten its very reputation.
Worse, the Prime Minister cannot be isolated from the furore. "The bottom line with problems like this is that you want to make sure the boss is detached from everything that is being splattered about," a Labour Party insider explained. "The problem with this investigation is that everything leads to Blair in one way or another. I know that Downing Street is deeply worried this week and the main reason for that is that they can't just deflect criticism away from him, like they usually do."
For a regime renowned for its over-arching desire to control its surroundings and the actions of people within its sphere, this state of powerlessness appears to have come as a shocking blow.
When news of an arrest first exploded on Thursday, the initial assumption was that it must be a Labour MP or peer; confirmation that it was Smith may have come as some relief at first, but it has brought its own problems. Despite his happily trumpeted links to the core of New Labour, Smith was not an employee, an adviser or, it appears, even a Labour party member: he is thus beyond all official government influence. The dilemma represented by his arrest was summed up by another party figure yesterday: "It's a relief that it is someone not associated with the Labour Party, but the worry is that as a result we have no idea what he is saying in there."
The police, it appears, would have it no other way. The swoop on Smith was in the first place a signal that they had not quietly dropped an investigation which many believed they had no stomach for. More importantly, it also demonstrated that they were prepared to pursue their inquiries with a vigour few had anticipated.
If the decision to arrest Smith was not dramatic enough, the manner in which he was hauled in for questioning was the stuff of television cop shows. A 60-year-old headteacher wanted for questioning over what is at base a 'white-collar crime' would not usually expect to be led from his home to a waiting police car in full view of his neighbours. He might also expect weightier figures, people with greater influence than he ever claimed to have, to hear the policeman's knock before him.
That Smith was arrested, rather than invited to attend a police station for questioning, and that he was the first person caught up in the intricate web of allegations to be hauled in, was entirely in line with the strategy finalised by senior Met officers in the days before they moved last week. "Mr Smith was the natural starting point because of his comments to a Sunday newspaper. He was, essentially, where this started," one said. "It is also sensible to identify sources that you think might be most productive to your inquiries at the earliest stage."
For "most productive", read "less experienced", "less polished" or "weakest". There is no suggestion that Smith has done anything wrong - he has not been charged with any offence - but the police strategy appears to be based on exploiting his knowledge to lead them to possible wrong-doing further up the food chain.
The aggressive strategy is based upon the "gang-busting" approach used successfully by American police to divide and then convict the members of influential criminal gangs. Control of the expanding inquiry has been handed over to a deputy assistant commissioner, John Yates, supported by detective superintendent Graham McNulty. Under them, it is now adopting a zero-tolerance approach.
And their officers are coming for those higher up the food-chain.
When one of Blair's closest confidants told Scotland on Sunday last month that the Prime Minister "knew exactly what was going on" when the Labour Party accepted loans from wealthy supporters - some of whom he eventually nominated for peerages - he underlined Blair's personal connection to the allegations that sparked the cash-for-peerages affair. His principal fund-raiser, Lord Levy, has since maintained he was effectively following demands from above when he helped collect £14m in 'secret' loan payments. Both men, along with ex-party general secretary Matt Carter and chairman Ian McCartney, are likely to become acquainted with Met detectives before the book is closed on this investigation.
"Mr Blair should expect to be visited," one police source ventured last night. "I don't think that will come as a great surprise to him."
Det Supt McNulty, the man charged with conducting the operation on the ground, in Westminster, Whitehall and Downing Street, will not have far to go.
HOW THE SCANDAL UNFOLDED
JANUARY 15 2006: It emerges that Des Smith, a senior adviser to Tony Blair's flagship city academy programme, has told an undercover reporter that wealthy donors could obtain honours such as knighthoods and peerages by giving money to the scheme.
MARCH 12: Dr Chai Patel, right, reveals that he had made a £1.5m loan to the Labour Party just weeks before being nominated for a peerage.
MARCH 15: Property millionaire David Garrard confirms that he too had loaned an unspecified amount to Labour before the 2005 General Election. Five months later, he was offered a peerage.
MARCH 16: Labour's treasurer Jack Dromey announces a party inquiry into the affair and adds that he had not been informed about the loans.
MARCH 17: Nationalist MP Angus MacNeil reveals that he has written to the police urging them to investigate whether an arcane 1925 law forbidding the offering of money for political honours has been broken.
MARCH 21: Scotland Yard announces that it has launched an investigation. Labour publishes its full list of lenders who gave the party almost £14m.
MARCH 29: Electoral Commission demands that parties surrender details of the loans they received.
MARCH 30: Scotland Yard announces that the scope of its inquiry has been widened to include all the main parties.
MARCH 31: The Tories reveal the names of 13 supporters who lent them £16m.
APRIL 6: It emerges that detectives are probing whether the parties broke election law in addition to laws on money for honours.
APRIL 13: Des Smith is arrested and questioned.