UK: Gordon Brown faces grilling over 'secret' donations

But the Tories said there was a “strong case” for returning the money after the party’s general secretary Peter Watt admitted he had been aware of the arrangements to enable Mr Abrahams to make the payments without declaring his identity.

Mr Watt resigned last night after acknowledging that the full details should have been disclosed to the Electoral Commission, which has now launched a formal inquiry into the whole affair.

The row is the latest blow to hit Gordon Brown, who faces a grilling from reporters today when he holds the latest of his regular Downing Street press conferences.

Justice Secretary Jack Straw insisted last night that Mr Brown and other senior ministers had been unaware that Mr Abrahams was behind the payments – which made him the third biggest Labour donor since Mr Brown entered No 10.

But shadow work and pensions secretary Chris Grayling said Labour now needed to make a “full and clear disclosure” of what went on.

And he said the party should consider repaying the money given by Mr Abrahams.

“There is a strong case for repaying the money. The rules are clear – you are not supposed to accept money channelled through another person,” he told GMTV.

Ms Hayter insisted that Labour was entitled to keep the donations.

She told BBC radio’s Good Morning Scotland: “The money was given completely legally – these donors were completely entitled to give to us, and there was nothing illegal about the donations.

“The mistake has been made that, although we declared all the amounts as they came in to the Electoral Commission, the declaration did not include the fact that someone else had been the original source of the money.

“We are doing thorough checks, and we are obviously reviewing our systems to ensure we will have a way of making sure this never happens again.”