Porn tycoon shocked liberal opinion with Express swoop

When the publisher of Asian Babes and Nude Readers Wives, Richard Desmond, swept into the proprietor's office inside Express Newspapers' smoked-glass HQ next to Blackfriars Bridge, liberal thinkers were shocked.

Mr Desmond, the cigar-smoking tycoon whose Northern and Shell Group was as well known for its string of pornographic titles as its ownership of the celebrity magazine OK!, seemingly came from nowhere to wrest ownership of the Express titles from the Labour-supporting peer Lord Hollick.

The deal between Mr Desmond and Lord Hollick, sealed at the end of November 2000, was greeted with gasps, as well as lurid accounts in other newspapers of his management methods. But when Stephen Byers, the Secretary of State for Trade and Industry at the time, passed the merger and declined to refer it to the Competition Commission a few weeks later, the story merited only a few paragraphs in the national press.

Yesterday, however, the deal that made Richard Clive Desmond the owner of the Daily Express, the Sunday Express and the Daily Star was at the centre of the latest storm over political donations because of the revelation that he had given £100,000 to the Labour Party – apparently just days after the Express titles takeover had been secured and immediately before new rules on the disclosure of political donations came into force.

Mr Desmond, who was fond of parading David and Victoria Beckham around the newsroom, was reported to have discussed the donation (originally an offer of free election advertising) with Tony Blair. This was hotly denied by Number 10.

Mr Byers, now the embattled Secretary of State for Transport, insisted yesterday that the donation had had no effect on his decision not to refer Mr Desmond's takeover to the competition authorities. But the Conservative Party went on the attack, demanding to know if Mr Desmond's money had influenced Mr Byers' decision.

Tim Collins, the shadow Minister for the Cabinet Office, said Mr Byers could have intervened in the Express Newspapers deal. "One would have thought Stephen Byers could have intervened. He chose not to and the issue is, was this donation a relevant factor?"

Privately, many Labour MPs were concerned that the party had taken money from a man with business interests such as Mr Desmond's.

Recently, the Government has been forced to bring out some of its hardest hitters to defend revelations about political donations including that of Lakshmi Mittal, an international steel magnate. Some Labour backbenchers believe that such revelations support the case for state funding of political parties.

Mr Desmond's unexpected takeover at the Daily Express caused widespread concern within the newspaper industry and in Parliament.

As senior staff at the Express group's London headquarters queued up to tender their resignations in protest over their new owner, backbench MPs voiced concern about the fate of the newspaper titles, which were a substantial shift away from Mr Desmond's stable of pornographic magazines and "adult" television channels.

Two select committee chairmen joined calls for the takeover to be referred to the Competition Commission. Robin Corbett, who was the chairman of the Commons Home Affairs Committee, said at the time: "It cannot be in the public interest that a man with these sleazy business interests is in control of a national newspaper."

Parallels were drawn with the case of David Sullivan, a pornography publisher and the proprietor of the Sunday Sport, whose planned takeover of the Bristol Evening Post in 1990 was deemed to be against the public interest because he was not a sufficiently "fit and proper person" to own it.

The £125m deal signed between Mr Desmond and Lord Hollick triggered an immediate referral to the Office of Fair Trading under the complex rules governing newspaper acquisitions and mergers.

The director general of fair trading gave his ruling in confidential advice to Mr Byers a few weeks later. On 7 February, a terse, two-paragraph press release was issued by the Department of Trade and Industry, confirming that Mr Byers would not refer the merger to the Competition Commission.

Mr Byers insisted yesterday that he was simply following his own policy, announced the previous October, of accepting the advice of the director general of fair trading except in exceptional circumstances.

The full Office of Fair Trading advice remains confidential. Under competition rules, newspaper mergers have to be referred to the Competition Commission only if the combined circulation of the merged group exceeds 500,000 a day.

The Sullivan takeover in Bristol would have triggered a referral, but Mr Desmond, a magazine publisher without daily newspaper interests, was not a national or regional newspaper publisher so his proposed takeover did not present competition problems. Last night, the dispute provoked fresh calls for state funding of political parties, to draw a line under such controversies over political donations.

Tony Wright, the chairman of the Commons' Public Administration Select Committee, said: "I feel unease about political parties taking money from all kinds of people. There is a lot of funny money around from lots of funny people."

Graham Allen, the Labour MP for Nottingham North, said: "It brings the day closer when we will have proper state funding of politics. Regardless of the reality, the perception has now become more important."

Labour's gift fiascos

Bernie Ecclestone

The Formula One boss made a donation of £1m to Labour in January 1997 – just four months before the party was elected. Motor racing was subsequently exempted from legislation banning tobacco advertising. The furore over the affair led to Mr Ecclestone being handed back his money.

Hinduja brothers

Srichand and Gopichand Hinduja matched Mr Ecclestone's gift in 1998 with a six-figure sum to fund the Millennium Dome's Faith Zone. Peter Mandelson, the minister then responsible for the troubled attraction, was accused of having spoken to officials at the Home Office who later issued Srichand, above, with a British passport. Mr Mandelson resigned, though an independent inquiry set up by the Prime Minister declined to say if he had behaved improperly.

Lakshmi Mittal

A £125,000 donation to Labour in June last year was followed by a letter from Tony Blair to the Prime Minister of Romania in support of Mr Mittal's planned takeover of nationalised steel plants. At first, this was explained away as government help for British business abroad – until news emerged that Mr Mittal's company was registered in Holland and had been competing against British steel industry interests.

Paul Drayson

The chief executive of a pharmaceuticals firm, Mr Drayson made two donations of £50,000 in July last year and January this year, not long before winning a lucrative government contract for smallpox vaccine. The official line was that his company, PowderJect, was producing the only vaccine strain capable of counteracting a terrorist attack. American doctors disputed this claim.