Hain hailed the PR firm whose boss attracted secret donors

Peter Hain publicly praised a public relations firm run by the spin doctor at the centre of his funding scandal, it emerged yesterday.

Freshwater UK, which paid thousands of pounds to attend a Labour fund-raising dinner days earlier, was described by the Work and Pensions Secretary as a "modern, dynamic company" which he wanted to see go "from strength to strength".

One of the firm's directors is John Underwood, who set up the mysterious "think-tank" that channelled more than £50,000 to Mr Hain's failed bid for the Labour deputy leadership.

Tory work and pensions spokesman Chris Grayling said: "When questions arise about links between him and companies he has endorsed, it's bound to raise significant questions about his judgment.

"All of these revelations are completely undermining Peter Hain's credibility."

On July 16 last year, as Freshwater UK prepared to float on the Stock Exchange, Mr Hain said: "Freshwater is yet another example of a modern, dynamic company originating from Wales.

"In just a decade it has become one of the fastest-growing PR companies in the UK and I look forward to seeing it go from strength to strength following its flotation."

Four days earlier, Mr Hain - who is also Welsh Secretary - was guest of honour at Freshwater UK's table at a Labour fundraising dinner in Wembley Stadium. Freshwater paid £10,000 for a table at the event. Mr Underwood, who also attended the dinner, is Freshwater's business development director.

He also set up the Progressive Policies Forum, which secretly channelled money from donors to Mr Hain's deputy leadership campaign.

Steve Howell, Freshwater UK's chief executive, insisted there was "no connection fundraising-wise" between the firm and Mr Hain.

He said the Stock Exchange had arranged for Mr Hain to endorse the firm because it was one of only three Welsh companies to be listed in 2007.

He said Mr Hain would have been "severely criticised" if he had not done so. Of the dinner, he said it was "in the nature of the business" to attend such events. He added that Mr Underwood had worked for Mr Hain "in a personal capacity on an unpaid basis in his own time" and "it's nothing to do with Freshwater".

He went on: "We did not choose to have Peter Hain at our table. It seemed fixed by the organisers."

Mr Hain said he had "no regrets" over promoting Welsh businesses.

Labour was accused of trying to deflect attention from the scandal last night after two of its MPs - John Mann and Kevan Jones - wrote to the Electoral Commission to complain about 80 donations to Tory MPs.>