Britain's richest man offers Labour a £2m bail-out

Lakshmi Mittal, Britain's richest man, was last night reported to have offered Labour a £2m bail-out. The donation from the Indian-born billionaire would help the party stave off financial ruin caused by the cash-for-honours scandal.

The Sunday Times claimed the deal had been negotiated by Tony Blair and Lord Levy, currently on bail having been arrested as part of the police investigation into the affair. Mr Mittal was at the centre of an earlier financial sleaze row when it emerged that Mr Blair had backed one of his business deals following a previous donation.

A Labour spokesman said: "Mr Mittal has been a committed supporter of the party for many years and any financial gift from one of the world's most successful businessmen is very welcome."

Meanwhile, government lawyers have provided legal advice to officials over the cash-for-honours affair, prompting accusations of a serious conflict of interest. The Independent on Sunday has learnt that lawyers from the Treasury solicitors department have scrutinised the law on the abuse of honours and taken outside advice from leading barristers.

The involvement of government lawyers, who are accountable to the Attorney General, during the police inquiry is controversial because the Attorney General, Lord Goldsmith, will play a key role in deciding whether the case should go to court.

Senior Whitehall sources said that Edmund Lawson QC, a leading criminal barrister specialising in fraud, was among those asked for advice by the government lawyers after the police launched their investigation into cash for honours. Mr Lawson refused to comment. But one Whitehall source said: "The Treasury solicitors were looking at this early on and were unsure of a point of law. They sought Edmund Lawson's advice."

The revelation, previously denied by Whitehall, will be embarrassing to the Government. The Labour Party has now brought in outside legal advisers to officials, including some of Tony Blair's closest aides. Lord Oakeshott of Seagrove Bay, a Liberal Democrat peer, is to table questions about the involvement of government lawyers. "Why was taxpayers' money used to give legal advice which could benefit the Labour Party?" he asked.

Police are expected to pass a file of evidence to the Crown Prosecution Service by the end of the month. The CPS has hired a second barrister to act on the case: David Perry QC will be joined by Robin McCoubrey, a criminal barrister, who will decide whether there is enough evidence to prosecute.

Lord Goldsmith's office said it did not know about the advice given by government lawyers, or how much it had cost the taxpayer. A spokesman said: "The Attorney General's Office has deliberately not been involved in any way with the response of officials, or any other persons, to that ongoing [police] investigation."

This week Sir Alistair Graham, chairman of the Committee on Standards in Public Life, is expected to call for greater transparency in parties' declarations of funding. His report into the workings of the Electoral Commission is expected to be critical of Labour's conduct.