THE "cash-for-honours" saga took another twist last night as it emerged that the election watchdog is poised to recommend prosecutions over the millions of pounds in secret loans received by Labour.
In a potentially disastrous blow to Tony Blair, senior officials from the Electoral Commission are set to recommend charges against politicians or party officials even if there is judged to be only a 50% chance of success in court.
The Electoral
Commission, which monitors donations to political parties, believes such a prosecution would be "in the public interest".
Scotland Yard Assistant Commissioner John Yates, who is in charge of the police inquiry, is close to concluding a case for breaches of laws governing elections and the financing of political parties.
The Electoral Commission has received evidence from Yates and considered whether Labour's loans breached the terms of the Political Parties Elections and Referendums Act 2000.
Scotland on Sunday understands officials are concerned over whether loans were properly disclosed in party returns, and whether they were agreed at a commercial rate of interest, in line with regulations.
The development piles on the pressure for Blair because the elections laws were previously regarded as a "secondary" danger to the Prime Minister and his colleagues. The real threat was perceived as coming from suggestions that tycoons were offered peerages as a "reward" for multi-million-pound loans to Labour, in breach of 1925 regulations preventing the "sale" of honours.
Crucially, the Electoral Commission will have first say over whether any charges are brought as a result of the cash-for-honours affair, before the completed police file is sent to prosecutors in January.
"The commission has received a large amount of evidence from the police," a source close to the organisation confirmed last night. "There is now an expectation in there that it will recommend a prosecution if there is only a 50/50 chance of success. They believe it will be in the public interest to test the law."
The warnings of looming charges over breaches of electoral law came as a member of Labour's ruling body confessed he feared the party could face action over its accounting procedures at the very least.
The grim forecast was reinforced last week when Yates revealed he had uncovered "significant and valuable" evidence and was close to passing a report to UK prosecutors.
But it emerged last night that Yates was "bounced" into showing his hand in a letter to senior MPs after they complained his original account of progress was "totally unacceptable".
The detective was then outraged after the Public Accounts Committee went ahead and published his letter, which was immediately interpreted as pointing to a mass of evidence against Blair.
A source close to the committee said: "It [the first letter] was totally unacceptable. It didn't tell the committee anything it didn't already know. They asked him to come back with a more comprehensive update.
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After Yates's strongly worded second letter arrived, committee members released it to the media.
An appointment to interview Blair now looks imminent, after Yates said he was "about to undertake" other inquiries.
