A political bombshell exploded on Downing Street yesterday with the arrest of prime minister Tony Blair's friend and chief fundraiser Lord Levy by police investigating the alleged "cash for honours" scandal, writes Frank Millar, London Editor.
At the heart of the investigation is a change in tactics which saw the Labour Party seek loans rather than donations from rich donors in the run-up to last year's general election, four of whom were subsequently nominated by the prime minister for peerages.
The four nominations were subsequently rejected by the appointments commission, which discovered the multi-million pound loans and saw them as an attempt to bypass the Labour government's own rules on disclosure of donations.
Unanswered questions about who authorised the "loans rather than donations" policy have fuelled speculation that the affair could force Mr Blair's departure from No 10 sooner than he might plan. And last night Scottish National Party leader Alex Salmond suggested "the waters" were now "lapping around the prime minister's ankles".
However, following his release on police bail last night, Lord Levy (61) again vigorously denied any wrongdoing, while accusing police of using their powers of arrest "totally unnecessarily". His spokesman said: "He has not been charged and does not expect to be, as he has committed no offence."
The spokesman said Lord Levy had made clear his readiness to co-operate with the police inquiry: "He therefore complied with a request to attend at a police station where the police used their arrest powers, totally unnecessarily, apparently in order to gain access to documents that Lord Levy would quite willingly have provided without this device."
The prime minister's official spokesman, meanwhile, described the arrest and questioning of the man nicknamed "Lord Cashpoint" as "a party matter".
Scotland Yard, which is investigating all three main parties at Westminster for any evidence of honours being bestowed in return for financial support, said: "Officers from the Specialist Crime Directorate requested a man to attend a London police station where he was arrested in connection with alleged offences under the Honours (prevention of Abuses) Act 1925 and Political Parties, Elections and Referendum Act 2000."
Lord Levy's arrest came just days after claims that he had advised two of Mr Blair's nominees for the House of Lords that they need not disclose the loans they had made to the Labour Party. It was also reported yesterday that police have introduced specialist software to help in a trawl of government computers.