Blair's party declares big loans in UK sleaze row

LONDON, Mar 17 (Reuters) A sleaze row threatening ritish Prime Minister Tony Blair gained momentum today when his Labour party said it had received 14 million pounds in previously undeclared loans from individuals.

The huge sums, which helped bankroll the party's election win last May, shocked some Labour lawmakers who accuse Blair and his inner circle of running a secret slush fund and risked deepening rifts within party ranks.

''I'm astonished at the amount of money involved in these secret loans, and would want to know where the money has gone,'' Labour parliamentarian Ian Davidson told Reuters.

''The operation of these secret accounts is tarnishing the image of the Labour Party and the Labour government as a whole, when it is clear that only a very small number of people were involved in this misbehaviour,'' he said.

Under party funding rules, loans do not need to be declared. But the disclosure that several wealthy businessmen were offered seats in parliament's upper house after lending Labour large sums has sparked the new ''cash-for-favours'' row.

The furore adds to Blair's troubles as he battles party revolts over his government's public service reform agenda and calls from some sections of his party for a swift handover to his likely successor, finance minister Gordon Brown.

Blair, who strongly denies ''selling'' peerages, said yesterday he knew about loans from individuals who were later nominated for seats in the House of Lords. He has begun a review of funding rules for British political parties.

The row has raised doubts about the transparency of a government Blair said would be ''whiter than white'' after sleaze and scandal dogged the previous Conservative administration.

EBBING AUTHORITY Blair won a third straight term last May but his majority was more than halved. He has said he will not seek a fourth term, a move analysts say has weakened his grip on his party.

The row also comes after the prime minister's ebbing authority took another knock on Wednesday. He had to rely on Conservative votes to get flagship school reforms past a key parliamentary hurdle when 52 Labour members rebelled.

Labour disclosed the loan sum two days after party treasurer Jack Dromey angrily said he had been ''kept in the dark'' about loans to Labour from wealthy supporters.

''The Labour Party has received 13,950,000 pounds in commercial loans from individuals,'' a party spokesman said in a statement today, adding the loans complied with the law.

Under British rules, donations must be disclosed but loans -- offered at commercial rates -- do not have to be made public, leaving a loophole that many say is open to abuse.

Seeking to limit the damage, Blair today appointed career civil servant Hayden Phillips to review party funding.

Labour has said it would propose next week that all future commercial loans and their sources should be declared publicly.

Blair said he would remove himself from the nomination of people to receive titles under Britain's honours system but he will retain the right to appoint Labour peers in the Lords until there is a wider reform of parliament's unelected upper chamber.

REUTERS DKS PM1951