Here we go again

The Tories will face prolonged embarrassment and questioning about their funders following the Derip

Can it really be the case that Peter Mandelson has finally turned his love of the high life to the political advantage of the Labour Party? As the shadow chancellor, George Osborne, struggles to extricate himself from the swirling allegations made by the scion of an international banking dynasty, involving party fundraising and a Russian aluminium oligarch, it is tempting to think so.

Lord Mandelson is like a political cluster bomb. Since he arrived back in Britain less than a month ago he has shown that he has lost none of his ability to attract the most explosive controversy. But his years in Brussels appear to have brought a new edge. With previous scandals, over his home loan from the then Labour paymaster general, Geoffrey Robinson, or his troubled relationship with the Indian billionaires the Hinduja brothers, he was content to bring only his own party into disrepute. This time his activities look set to drag in the opposition as well.

The label of “novice”, waved by Gordon Brown in his enemies’ direction at the Labour conference in Manchester, now weighs heavily around George Osborne’s neck. He is starting to discover that when you mix it in the big playground, the older boys can play rough. It is one thing picking off Gordon Brown when he is isolated; it is quite another when Big Brothers Mandelson, Alastair Campbell and John Prescott have turned up.

From the moment “sources” spilled the beans about a private conversation between Osborne and Mandelson at a dinner hosted in Corfu by the financier Nathaniel Rothschild, the shadow chancellor found himself in a potentially dangerous position. He chose to let the story run that Mandelson had “dripped poison” in his ear about Brown. This was a high-risk strategy – because, at this point, Osborne knew very well that while he himself was in Corfu he had taken the Tories’ chief fundraiser, Andrew Feldman, to meet the Russian aluminium tycoon Oleg Deripaska on board his yacht. Is it credible that Osborne took him along to make a social call to Deripaska? Of course it’s always possible.

This raises worrying questions about his judgement. Feldman now appears to be unclear as to whether a suggestion was made at any point that it might be possible for Deripaska to make a donation through a British company.

“What the public are entitled to know,” said Feldman, “is whether we accept donations and whether we explain to people exactly how to make a legal donation.” Osborne has failed to deny that such discussions took place, assserting only that no donation was solicited and none was given. At the time of writing there was no suggestion that the Conservative Party broke the rules in this case or that they intended to. Deripaska never made a donation. But it certainly attracts attention to donations that have been made to the Conservative Party during the David Cameron era, when the party has operated at the very fringes of what is permitted. Antony Barnett, of Channel 4’s Dispatches, recently revealed details of the cash the Tories had received from City hedge -fund managers who had profited from the economic crash, and asked whether Cameron was being entirely open with the British public about his party’s sources of funding.

There remain several outstanding questions in the light of the Deripaska affair. The Political Parties, Elections and Referendums Act 2000 was introduced to end foreign donations to British political parties. It is, therefore, perfectly legitimate to ask whether the Conservative Party is now following the spirit of the law in receiving these donations. How about the £50,000 donation from Venson Automotive Solutions Ltd, accepted on 20 September last year?

Venson is owned by the Irish businessman Dermot Desmond, also the single largest shareholder at Celtic Football Club, who is listed as worth $2.5bn by Forbes this year. Venson is a British company, so no rules have been broken. But as an Irishman, Desmond is a foreigner and his company made a donation to the Conservative Party. Is it a foreign donation? Strictly speaking, no it is not. Was this the model suggested to Deripaska? Who knows? As transparency in politics is something Cameron’s Conservatives are keen to promote, it would be interesting to clarify this. The Liberal Democrat leader Nick Clegg put it best when he said: “What does strike people is the slight whiff of hypocrisy about the Conservatives talking about the new politics, turning a new page, turning their back on the old ways of politics, and yet still going around, it’s alleged, with a begging bowl to the rich and famous around the world.”

In this case, how do they explain the donation of £50,000 from 22 January this year made by Australian mining magnate Robert Champion de Crespigny, or the £50,000 from the German Andreas Heeschen, who owns the firearms manufacturer Heckler & Koch, made in May 2007?

Again, the law has not been broken in either case. This is because both Heeschen and de Crespigny are on the UK electoral register. As such they are, strictly speaking, able to donate to British political parties. But would they describe themselves as British? All this money was brought in by Feldman, who has been a brilliant fundraiser for the Conservative Party.

Will the British public be persuaded by Mandelson’s assurances that Chinese walls were strictly respected during his own conversations with Deripaska when he was European trade commissioner? Helpfully, we have the testimony of Benjamin Wegg-Prosser, Mandelson’s former aide, who now works in Russia himself. Writing on his blog, Wegg-Prosser described a visit by the trade commissioner to his “dacha”, followed by a dinner with Deripaska. He reported fierce arguments over the World Trade Organisation and Russian tariffs on Finnish timber imports. “Their friendship was founded on these sort of jousts and arguments,” wrote Mandelson’s close political ally. Perhaps he thought he was being helpful, but this is precisely the sort of conversation the EU commissioner should have been avoiding. There is no obvious conflict of interest here, but some would argue that an EU commissioner should never have put himself in this potentially compromising position.

There is genuine delight on the Labour benches at Osborne’s embarrassment at the hands of his old university friend Rothschild. But when the dust settles over the claim and counterclaim surrounding the events in Corfu last summer, the Labour Party will have to assess whether it really has fallen in love with Mandelson, as Tony Blair once suggested it must. He has certainly brought a vibrancy to the government. But it is a difficult call for Brown, who would never be seen on the yacht of a Russian oligarch. In his Presbyterian universe, such behaviour is best left to the Tories.

Back in Westminster, the Prime Minister should be pleased at the way his party has rallied behind him at this time of crisis. One backbencher previously hostile to Brown said: “Gordon looks 20 years younger and has been really commanding in the House. He is a different man.” Cabinet ministers are talking enthusiastically about the National Economic Council, the group of 19 ministers and civil servants set up to tackle the economic crisis.

At first ridiculed for its unwieldy size, the NEC, which meets twice a week, is now being hailed as one of the Prime Minister’s most important innovations. In particular, ministers are said to be delighted that their proposals are being acted on by civil servants within days rather than months. Already proposals on increasing the speed at which small businesses will be paid have emerged from the Council’s deliberations. Ministers have been instructed to work on contingency plans in their own areas and further announcements on housing, regeneration and training will be made in the next few weeks.

It is also significant that Dan Corry has been moved to lead the group of specialist advisers to the committee from his previous job as head of the Downing Street policy unit. Corry, a special adviser from the Blair era with a Treasury and DTI background, is widely respected across Whitehall and is seen as a non-sectarian figure.

The polling remains dismal for Labour, though. The government’s electoral recovery is slipping despite admiration for Brown’s handling of the crisis within the Westminster village. The latest Guardian/ICM poll had the Conservatives on 42 per cent and Labour on 30 – a 12-point gap, which remains unchanged from the same poll a month ago.

As we move towards this winter’s pre-Budget report, the thoughts of Labour backbenchers will turn once more to the package the Chancellor has prepared to compensate their constituents for the abolition of the 10p tax rate and measures to protect people against the ravages of the credit crunch. As the rebel MP Frank Field has noted, there is plenty of scope for critics of the Prime Minister to regroup if the measures are not seen to be adequate.

The challenge for Brown in the months to come will not be persuading the Labour Party to embrace Peter Mandelson and his unsavoury Eurotrash friends. It will be to embrace the Labour Party and engage with the genuine fears of working people and the businesses that employ them as the country enters recession.

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Why relations between Theresa May and Philip Hammond became tense so quickly

The political imperative of controlling immigration is clashing with the economic imperative of maintaining growth. 

There is no relationship in government more important than that between the prime minister and the chancellor. When Theresa May entered No.10, she chose Philip Hammond, a dependable technocrat and long-standing ally who she had known since Oxford University. 

But relations between the pair have proved far tenser than anticipated. On Wednesday, Hammond suggested that students could be excluded from the net migration target. "We are having conversations within government about the most appropriate way to record and address net migration," he told the Treasury select committee. The Chancellor, in common with many others, has long regarded the inclusion of students as an obstacle to growth. 

The following day Hammond was publicly rebuked by No.10. "Our position on who is included in the figures has not changed, and we are categorically not reviewing whether or not students are included," a spokesman said (as I reported in advance, May believes that the public would see this move as "a fix"). 

This is not the only clash in May's first 100 days. Hammond was aggrieved by the Prime Minister's criticisms of loose monetary policy (which forced No.10 to state that it "respects the independence of the Bank of England") and is resisting tougher controls on foreign takeovers. The Chancellor has also struck a more sceptical tone on the UK's economic prospects. "It is clear to me that the British people did not vote on June 23 to become poorer," he declared in his conference speech, a signal that national prosperity must come before control of immigration. 

May and Hammond's relationship was never going to match the remarkable bond between David Cameron and George Osborne. But should relations worsen it risks becoming closer to that beween Gordon Brown and Alistair Darling. Like Hammond, Darling entered the Treasury as a calm technocrat and an ally of the PM. But the extraordinary circumstances of the financial crisis transformed him into a far more assertive figure.

In times of turmoil, there is an inevitable clash between political and economic priorities. As prime minister, Brown resisted talk of cuts for fear of the electoral consequences. But as chancellor, Darling was more concerned with the bottom line (backing a rise in VAT). By analogy, May is focused on the political imperative of controlling immigration, while Hammond is focused on the economic imperative of maintaining growth. If their relationship is to endure far tougher times they will soon need to find a middle way. 

George Eaton is political editor of the New Statesman.