Leading article: A shadowy way to fund Labour's Big Three

"There are three ways of giving money to a political party. Two of them are legitimate and one is not" - a Labour official, commenting on yesterday's report of the millionaires who are bankrolling Tony Blair's Shadow Cabinet. The three options are: (a) Both the recipient and the public could know who has given the money; (b) Neither the recipient nor the public know, in which case the politician cannot theoretically be influenced by the donation; (c) The recipient knows but the public does not, which is what the Conservatives do.

Now, it is absolutely true that the funding methods of the modern Tory party are indefensible and undemocratic. It is true that yesterday's Sunday Times report of the "secretive fund" that pays the meagre salaries of researchers for Robin Cook, David Blunkett, Jack Straw and others was self-rebutting, in that it was based - if you persevered to paragraph 16 - on information openly and willingly provided by the Labour Party about the source of this money. But it is also true that the Labour leader's arrangements for a "blind trust" to pay for his unprecedentedly large private office are unsatisfactory.

The blind trust was set up along the lines of options (b). The identity of its donors is known only to the fund's three trustees, who are charged with ensuring that they are neither criminals nor foreigners and then passing the money on. The trust was approved by Sir Gordon Downey, Parliament's ethics watchdog, as a way to avoid the perception that people who helped to finance Mr Blair's office wanted to buy influence. Sir Gordon may now regret his decision, which he is currently re-examining. On the narrow point of avoiding influence-peddling, the device is fine. But it fails to convince when viewed as part of the broader picture.

The Labour Party has made great play of its openness about the source of its money. As well as affiliation fees from trade unions, it now publishes the names of donors giving more than pounds 5,000 in any one year. And it has contrasted this with the absolute secrecy of the Tory accounts.

"It is a disgrace that in a democracy a political party can hide the sources of its funding from the public," said John Prescott last year, once again performing the valuable service of speaking plainly. But it undermines his claim to be "Honest John", and Labour's claim to the moral high ground, that Mr Blair, Mr Prescott and Mr Brown should all have blind trusts that hide the sources of their funding - even if they are also hidden from Labour's Big Three themselves. And who is to say there will not be nods and winks as to the source of the money?

The real problem for Labour is that there may well be two different ways of accepting political donations which are both better than the Tory way, but is one not better than the other? What is wrong with complete openness as a guiding principle throughout? Why should the Labour leader and his top brass have private funds at all? It is, at the very least, confusing that there should be separate funds for the top three operating under one set of rules, and a fund for the rest of the Shadow Cabinet apart from the Labour Party itself, both of which operate under the rules of full disclosure.

The problem is not simply one of who gives the money, but who spends it. Party leaders have always had semi-private funds to pay for their offices. Harold Wilson subsidised his by selling his memoirs in between his two periods in 10 Downing Street. And it has always been a sensitive issue. "Who pays for Ted Heath's yacht?" Wilson growled, when pressed on his own funds.

Recognition that there was a problem lay behind the introduction in the 1970s of modest public funding for opposition leaders, the so-called "Short Money" (a reform that gave Michael Portillo his first political job, as a Tory frontbench researcher).

The funds that are available to Mr Blair - reportedly pounds 2m - are substantial and are spent at his discretion. His office, consisting of more than 20 staff, is much bigger than any of his predecessors' and much more powerful in relation to the party machine. But not only does Mr Blair's trust not disclose the sources of its money, it does not publish accounts of where that money goes.

Clearly, many business leaders in particular are much happier parting with their money if it goes to funds controlled by Mr Blair himself than if it ends up in the Labour Party's general account at the Co-op, for which the National Executive must sign the cheques. But this does raise broader issues of policy, and of Mr Blair's relationship with the corporate Establishment.

If, as we report today, BT's chairman, Iain Vallance, is about to be awarded a pounds 500,000 bonus, what is a Labour prime-minister-in-waiting going to say or do about it? Labour is against fat-cat bosses of privatised utilities, except when they give Mr Blair a big governmental announcement to make at his party conference. And except when it comes to doing anything about them.

It is unfair, of course, to criticise Labour when the position of the Prime Minister and the Conservative Party is so much worse. Mr Blair, after all, is not about to start selling peerages, although Gordon Brown may want to consider the idea as a way of producing revenue from democratic reform.

But it is safe to say, without prejudice to our political independence, that the likelihood that Mr Blair might be prime minister in eight weeks' time is strong. The ethical standards of his proto-administration must be examined on their own merits, not just in comparison to what has gone before. The fact that Mr Major's house is so disorderly does not excuse Mr Blair from less serious infractions.