The Cash-for-Honours scandal (also known as Cash for Peerages, Loans for Lordships, Loans for Honours or Loans for Peerages) was a political scandal in the United Kingdom in 2006 and 2007 concerning the connection between political donations and the award of life peerages. A loophole in electoral law in the United Kingdom means that although anyone donating even small sums of money to a political party has to declare this as a matter of public record, those loaning money at commercial rates of interest did not have to make a public declaration.
In March 2006, several men nominated for life peerages by the Prime Minister, Tony Blair, were rejected by the House of Lords Appointments Commission. It was later revealed they had loaned large amounts of money to the governing Labour Party, at the suggestion of Labour fundraiser Lord Levy. Suspicion was aroused by some that the peerages were a quid pro quo for the loans. This resulted in three complaints to the Metropolitan Police by Scottish National Party MP Angus MacNeil, Plaid Cymru parliamentary leader Elfyn Llwyd and a third individual who remains unidentified, as a breach of the law against selling honours. The investigation was led by Assistant Commissioner John Yates who later resigned over the News of the World phone hacking scandal. During the investigation, members of the Labour Party (including Blair) the Conservatives and the Liberal Democrats were questioned and Levy was arrested and later released on bail. The investigation continued to have political impact, as stories leaked from the police investigation and damaged the government and Labour Party.
Following the unveiling of the scandal the Labour Party had to repay the loans and was said to be in financial difficulty. The police investigation was long and involved. It expanded to encompass potential charges of perverting the course of justice, apparently relating to suspected attempts to present evidence to the police in a particular way. At one point the Attorney General, Lord Goldsmith, obtained an injunction against the BBC, preventing them from reporting a story they claimed was in the public interest while he argued that the story was sub judice. This raised the possibility of a conflict of interest, the Attorney General being a political appointee. Tony Blair was interviewed three times as Prime Minister, though only as a witness and not under caution.
After a long review of the police file, it was reported on 20 July 2007 that the Crown Prosecution Service would not bring any charges against any of the individuals involved. Their decision stated that while peerages may have been given in exchange for loans, it could not find direct evidence that that had been agreed in advance; this would have been required for a successful prosecution."No charges on 'cash for honours'", BBC. Notwithstanding the lack of charges, some considered that the investigation had severely undermined Tony Blair's position, and possibly hastened his resignation as Prime Minister.
Background Historically, hereditary peerages were awarded to members of the landowning aristocracy and royal favourites. In the late 19th century, peerages began to be awarded to industrialists with increasing frequency. Well-substantiated allegations that titles were sold during David Lloyd George's premiership led to the passing of the Honours (Prevention of Abuses) Act 1925. In the second half of the 20th century the granting of hereditary peerages, other than to members of the Royal Family, virtually ceased, giving way to life peerages, which have been granted since the passing of the Life Peerages Act 1958. They are given to a wide range of individuals on the recommendation of the leaders of the major British political parties, including opposition parties.
In May 1998, the then Chairman of the Political Honours Scrutiny Committee, former Conservative Cabinet Minister Lord Pym, told a House of Commons Select Committee that the committee considered a political donation a point in a nominee's favour as it indicated involvement in public life, and that the nominee had "put their money where his mouth is". The House of Lords Appointments Commission was established in 2000 to check the suitability of those nominated for an honour.
In the summer of 2005, a list of 28 people nominated for working peerages was prepared. The list contained 11 Labour nominees, eight Conservatives, five Liberal Democrats, three members of the Democratic Unionist Party and one member of the Ulster Unionist Party. The list was referred to the Appointments Commission in the usual way. Publication of the list was delayed and stories began to appear in the press stating that the Commission had concerns about some of those nominated on grounds of their large donations to political parties. Some of the Labour peers appointed became known as Tony's Cronies. In February 2006, stockbroker Barry Townsley, who had donated £6,000 (and loaned £1 million on commercial terms) to the Labour Party and contributed £1.5 m to a City Academy under a government scheme, withdrew his acceptance on the grounds of press intrusion into his private life.
Townsley, who was the subject of an investigation by the Serious Fraud Office, was followed by property millionaire Sir David Garrard, who withdrew his name in March 2006. Sir Gulam Noon, the British-Indian food company millionaire, was also nominated by the Labour Party after having made donations and loaned money (he also had his nomination rejected by the Appointments Commission). Sir Gulam told The Times newspaper a "senior party man" told him "there was no reason why I should declare this loan because it was refundable". "I was told by this same person that because there was interest on the loan it was a commercial matter and would not come under the same party funding rules as a donation."
The list of working peers, minus the withdrawn and queried names, was published on 10 April 2006.Downing Street press release , 10 April 2006
Chai Patel On 8 March 2006, Chai Patel, director of the Priory healthcare group, who had donated £100,000 to the Labour Party complained that he was being rejected by the Commission. He said "It is a fact that I have donated, but what is being implicated is that I would be rewarded with a peerage. I have never asked for any favour for the money that I have donated. My children suggested that if I had not given this money, I would not be seen in this light. But I happen to support this Government. I gave money to the party because I happen to believe in what it stands for. I can't change what has happened." Patel stated that he had asked a Queen's Counsel for advice on whether his human rights were being abused by the Commission.
On 29 March 2006, Patel withdrew his name from the list of nominees for a peerage. He said that at no time did he have any expectation of a reward nor had he been offered anything in return, yet on a BBC Today programme he expressed the view that he wanted to serve in the Upper House (the Lords) as he felt that his life experience ensured that he could make a valuable contribution there. He has also stated in a letter to the House of Lords Appointments Commission that "I feel that, given my accumulated experience and deep sense of public service, as well as being able to devote the time to undertake the responsibility effectively, I would be able to make a contribution to the parliamentary process."
Loans On 12 March 2006, the Sunday Times reported that shortly before being told that he would receive a peerage, Patel had been asked to change a donation to the Labour Party he was planning to make into an unsecured loan. On 26 March 2006, The Independent confirmed that it was Lord Levy who had asked Patel to switch using this unsecured loan approach. He agreed and loaned £1.5 m to the party, telling them that he would be prepared to change the loan into a donation at some point in the future. Over the next few days stories were printed which stated that the Labour Party had borrowed £3.5 million from private individuals during 2005, the year of a general election. It was subsequently revealed that a total of £13.95 million had been loaned by wealthy individuals to support Labour's election campaign. The figures released mean the bulk of the £17.94 m the party spent on its general election campaign was paid for by loans from individuals. The terms of the loans were confidential.
Loans made on commercial terms, at between 1% and 3% above the banking base rate as was the case here, are not subject to reporting requirements to the Electoral Commission. However the Treasurer of the Party, Jack Dromey, stated publicly that neither he nor Labour's elected National Executive Committee chairman Sir Jeremy Beecham had knowledge of or involvement in the loans and had only become aware when he read about it in the newspapers. Dromey stated that he was regularly consulted about conventional bank loans. As well as announcing his own investigation he called on the Electoral Commission to investigate the issue of political parties taking out loans from non-commercial sources.
Tribune reported that Dromey had intended to reveal his inquiry exclusively in the Labour-oriented magazine later that week, but having heard that Tony Blair intended to announce an inquiry the following day, toured television studios on the evening of 15 March 2006 announcing his inquiry (video). Dromey feared he would be blamed for the debts by an inquiry organised by 10 Downing Street (Tribune, 24 March 2006, p. 5). Dromey's announcement created much media interest to which Blair had to respond to at his monthly press conference the next day. Blair said he wanted to shake up of the honours system and improve the rules covering party funding.
The affair centred on two aspects of Labour's political fund raising activities. First, to what degree was there a tacit or implied relationship between the large scale donors and their subsequent recognition via the honours system? Second, the rules on party funding (applicable to all political parties in the UK) require that anyone donating £5,000 or more must be named – but loans of any amount do not have to be declared provided they are made on commercial terms. This loophole raises accusations of undue secrecy and potentially calls into question the probity of those involved in procurement and handling of such large and anonymous sums, particularly when the elected party treasurer was unaware of the existence of the loans.
Lord Levy, a close friend of Tony Blair (who was the Prime Minister's personal envoy to the Middle East, as well as tennis partner), had raised funds for Labour and was identified in the press as a key figure in arranging the loans and on 17 March 2006 it was announced that the Public Administration Select Committee of the House of Commons had invited him to give evidence on political financing. Committee chairman Tony Wright said:
"With continuing speculation about whether the system of scrutiny is sufficiently robust and as part of our wider inquiry into current standards of probity in public life, we will be hearing from those charged with scrutinising nominations to ensure that there are robust safeguards against honours for sale."
Another issue was repayment: the Labour Party owed about £14 m before the election. The interest on the loans amounted to £900,000 a year and some of the loans had to be repaid within months, either through further borrowing or gifts. In these circumstances, one unanswered question concerned why Lord Levy asked for loans rather than gifts.
It was disclosed on 25 March 2006 that the only persons privy to details of the loans were Tony Blair, Lord Levy and Matt Carter.