Tycoon at centre of Labour donor row 'won't get his money back'

Though Gordon Brown pledged to return more than £650,000 taken "unlawfully" from David Abrahams through a string of middle-men, the cash could end up being confiscated by the state.

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The development came as senior Labour MP Jon Cruddas said the Government was faced with "crises of both style and substance - and these are coming together to create a perfect storm of political havoc".

Writing in today's New Statesman, Mr Cruddas, who came third in the party's deputy leadership contest, said New Labour had created a "centralised model of politics that long ago left the party floundering and led in turn to the current funding crisis".

It was confirmed last night that Labour has yet to repay the Abrahams money and is in discussions with the Electoral Commission about it.

If the watchdog decides it should not be returned, the money would then go into public coffers.

Under electoral law, donations that are being returned normally have to be given back within 30 days of being made.

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After that time, the money is generally forfeited to a Treasury fund.

Government sources indicated that, if it did end up going to the Treasury, it would then be handed to charity to avoid further controversy.

Labour minister Lord Hunt told the Lords: "My understanding is that the Labour Party is continuing discussions-with the Electoral Commission as to how to return the money."

That contradicted Culture Secretary James Purnell, who insisted in an interview that the issue had already been resolved.

"We've given the money back," he said.

In the Commons, David Cameron attacked Labour over party donations, defence spending and prison places and claimed Mr Brown's Government was "falling apart".

"It took Tony Blair ten years before confidence in his administration collapsed," Mr Cameron told the Premier.

"You've managed it in six months."

There was laughter as he likened Mr Brown to the missing canoeist who reappeared this week, claiming he refused to accept any responsibility for the Government's past failings.

"I know you want us to think that like the man in the canoe, you haven't been around for the last five years," Mr Cameron said.

Mr Brown repeatedly challenged the Tories to return to cross-party talks to discuss Labour proposals for reform of political party funding.

He also denied that an internal inquiry into the donations scandal headed by Labour peer Lord Whitty had had to be partially suspended because of a police probe.