£600,000 'donorgate' cash still in Labour account .. six months after vow to repay it

Gordon Brown is embroiled in fresh controversy over Labour's failure to pay back £630,000 in secret donations.

Last year The Mail on Sunday revealed how property developer David Abrahams had donated the cash through middlemen, prompting the resignation of the party's general secretary Peter Watt.

The Prime Minister then branded proxy donations as "completely unacceptable" and announced that all money given to Labour anonymously would be repaid.

Six months on, however, the cash is sitting in a special "escrow" bank account set up by Labour to ensure that it does not earn any interest from it.

Party chiefs said it would remain there until a Metropolitan Police investigation into the donations had been completed.

But inquiries by this newspaper have established that Scotland Yard wrote to the Labour Party as long ago as last December saying that "the donated money was no longer an issue for the police". Mr Abrahams, from Newcastle, and his middlemen have also been cleared of any wrongdoing.

According to a spokeswoman for Scotland Yard's Specialist Crime Unit: "The Met initially asked Labour to retain the donated money pending us seeking legal advice over any impact its return may have on the investigation.

"Following advice from the Crown Prosecution Service, the Met informed all relevant parties, including the Electoral Commission, in December 2007 that the status of the donated money was no longer an issue for the police." Labour never made this advice public.

Yesterday Tory frontbencher Chris Grayling said: "This was clearly another attempt by Labour to bury bad news.

"It is extraordinary that Gordon Brown could make such a clear promise about repaying the money and then do nothing while quietly hoping no one noticed. He just keeps on treating the British people as fools."

A source close to the police inquiry said officers were baffled by Labour's suggestion that the investigation was stopping it from returning the money. "The donors are innocent so far as the law is concerned," he said.

A Labour Party spokesman said: "The investigation has not been concluded and the Electoral Commission has not made a judgment. The escrow account holder will take instruction from the police, the courts or the Electoral Commission to determine the rightful ownership of the funds and who the money should be sent to."

Labour's decision not to return the money comes despite deputy leader Harriet Harman giving back £5,000 in donations from Mr Abrahams.

The Mail on Sunday sparked the Donorgate row last November when we revealed that two people, builder Ray Ruddick and secretary Janet Kidd, had given £80,000 each – money they had, in fact, passed on from Mr Abrahams.