UK Parliament suspends political sleaze probe

LONDON, May 16 (Reuters) British lawmakers today agreed to give police until July to probe charges that the ruling Labour Party offered peerages to wealthy businessmen who lent it money, breaking the law.

The lawmakers decided to give the police priority and suspended their own investigation into the allegations, one of a series of scandals that have led to widespread criticism of Prime Minister Tony Blair and contributed to a drubbing for Labour in recent local elections.

The police are investigating accusations that Blair's office nominated several millionaires for seats in the House of Lords -- parliament's unelected upper chamber -- in return for loans to Labour or funding for new schools.

A 1925 law made it illegal to sell seats in the Lords. Labour denies the allegations.

London police asked the parliamentary committee probing the case on Monday to delay quizzing witnesses key to the criminal probe until the police had seen them.

The police, who hope to produce a preliminary report for prosecutors in September, feared the committee's public hearings could jeopardise the criminal investigation.

The all-party parliamentary committee agreed to give the police until July to carry out their inquiries.

''In order to allow the police to progress (with) their inquiries further, we will not, at this stage take further evidence from those classified as key witnesses in the police inquiry...'' a committee statement said.

But it added: ''The committee is not content to let the police inquiry stretch into an indefinite future, preventing parliament conducting its own inquiries.'' Tony Wright, the Labour legislator heading the parliamentary enquiry, said his committee would make an initial report soon and decide its next step in July after being updated by police.

EMBARRASSING FOR BLAIR Police are expected to question senior government figures including Blair's chief fundraiser, Lord Levy.

Des Smith, a former government adviser, was arrested in April in the police probe but released on bail after questioning. He has said he is innocent.

Embarrassingly for Blair, the preliminary police report could come out just before Labour's annual party conference in September, where Blair will be under pressure to quit from Labour rebels who view him as an electoral liability.

Blair, who pledged to eradicate sleaze from public office when he became premier in 1997, has said he will not seek a fourth term.

Pressure is mounting on him to hand over to his expected successor, finance minister Gordon Brown.

Wright said that, after Monday's meeting with a senior police officer, he was less sceptical than he had been that the police probe would lead to prosecutions.

''They (the police) were putting serious resources into it, they were collecting large amounts of material. I think they thought the enquiry was going to go somewhere,'' he said.

The row blew up in March when Labour admitted it had received nearly 14 million pounds in loans from 12 businessmen to help bankroll its third straight election win.

Some were later nominated for seats in the House of Lords, used by governments for decades as an outlet for patronage.

Several donors also gave financial backing to Blair's flagship schools programme, known as city academies.

London police's Deputy Assistant Commissioner John Yates said on Monday he had made ''significant progress'' in the probe but it was ''at a relatively early stage''.

REUTERS SY PM0005