Scotland Yard has launched an investigation into the alleged sale of honours by the Labour Party.

The Metropolitan Police announced yesterday that its Specialist Crime Directorate was looking into three complaints relating to alleged breaches of a 1925 law passed following the scandal over the sale of peerages by David Lloyd George when he was prime minister.

Last week, Scottish National Party MP Angus MacNeil complained to Met Commissioner Sir Ian Blair and the Director of Public Prosecutions after it was revealed that several wealthy individuals had been nominated for peerages after giving Labour loans that ran into millions of pounds.

In a statement, Scotland Yard said: "The Metropolitan Police Service has received three complaints about the Labour Party under section 1(1) of the Honours (Prevention of Abuses) Act 1925.

"These allegations are being investigated by the Specialist Crime Directorate."

A Scotland Yard spokesman said the three complaints were in relation to the loans for peerages allegations.

He said Mr MacNeil had made a complaint in the past few days.

He declined to name the other complainants.

However, it later emerged that one of the other two complaints came from Plaid Cymru's parliamentary leader, Elfyn Llwyd.

Scotland Yard had informed the Home Office about the inquiry, said a spokesman.

Mr MacNeil welcomed the investigation and said he hoped it would lead to prosecutions in court. "The sale of peerages is an illegal act and I welcome the fact that the Metropolitan Police is to investigate these allegations," he said.

"If Labour has been receiving dirty money, then we have a right to know and ultimately action must be taken. The law is the law and it applies to all of us, even the Prime Minister."

The police announcement came after Labour moved to damp down controversy over its finances by handing back control over fundraising to its ruling National Executive Committee (NEC).

In a meeting attended by Prime Minister Tony Blair, the NEC heard a report from treasurer Jack Dromey into a series of secret loans totalling almost £14m, which were received by the party at about the time of last year's General Election.

Mr Dromey complained last week that he and other elected officials had been kept in the dark about the money, understood to have been obtained by Mr Blair's personal fundraiser, Lord Levy.

It later emerged that neither Chancellor Gordon Brown nor Deputy Prime Minister John Prescott had been told about the loans which, unlike gifts, do not have to be declared to the Electoral Commission for publication in its register of donations.

After the meeting, the NEC said in a statement that it would "resume its rightful responsibility for oversight of all matters of party funding and financing".

And it agreed that all future commercial loans agreed by the party would be publicly declared, along with their sources.

The NEC insisted no rules had been broken and urged other parties to join it in publishing the names of the suppliers of loans.

In an interview on BBC2's Newsnight programme last night, NEC chairman Sir Jeremy Beecham said Labour would ''co-operate absolutely fully'' with the police investigation.

He also accused the SNP and Plaid Cymru of opportunism for contacting police.

The loans came to light after an independent commission that vets nominations for peerages reportedly raised concerns over a number of people put forward by Mr Blair.

Earlier, one of the businessmen involved said he was asking for his nomination for a seat in the House of Lords to be withdrawn. Sir Gulam Noon said he had written to Mr Blair, asking him to remove his name from Labour's proposed list of working peers.

He said he had found himself in "an invidious position not of my making" and had always acted "with complete propriety".

Meanwhile, Priory Clinics founder Chai Patel, who gave the party £1.5m, disclosed he was asked by Lord Levy to provide a loan rather than a donation.

Dr Patel was subsequently nominated for a peerage, but the honour was blocked by the House of Lords Appointments Commission.

But he insisted there was no suggestion he would be rewarded with a peerage.

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