At the heart of the Labour funding scandal is the moral collapse of a once-great party

et me a Bishop. Get me a f—ing Bishop!' Peter Mandelson, then Labour's political strategist, yelled these words across the floor of Labour campaign headquarters at a rare moment of crisis before the 1997 general election. Inquiries were made, soundings taken in ecclesiastical and other circles. With surprising speed, lo and behold! there emerged out of pontifical obscurity the austere figure of Richard Harries, Bishop of Oxford. The ecclesiastical potentate obligingly anathemised John Major and his works.

Ever since then the Rt Revd Harries has been reliably on hand with spiritual solace for Labour party politicians in times of trouble. When Michael Howard accused Tony Blair of bad faith over Iraq, Richard Harries confirmed his burgeoning reputation as the Lord Hutton of the Bishops' Bench by placing the spiritual weight of the established Church behind the Prime Minister's personal integrity.

Last week Lord Harries descended, deus ex machina, into the Labour party's latest funding scandal. The Bishop will preside over the internal Labour inquiry, announced by Gordon Brown this week, into the circumstances which allowed Peter Abrahams, a businessman from Newcastle, to keep party donations worth £600,000 secret.

Doubtless Lord Harries, who stepped down from his Oxford see last year, has knocked about a bit. Nevertheless it is very doubtful whether anything in Lord Harries's previous experience can have prepared him for what lies ahead. He is not just dealing with a funding problem. At the heart of the matter is the financial, organisational and above all moral collapse of a once great political party. When Tony Blair and Gordon Brown seized control of Labour 13 years ago in what the former Cabinet secretary Lord Butler last week accurately described as a coup d'etat, they made a deliberate decision.

Blair and Brown resolved to sever Labour's historic connection both with the trade unions and, more striking still, with ordinary party activists. They sought instead ruthlessly to pursue alliances with people from the business world. In some cases — the Formula 1 racing tycoon Bernie Ecclestone is a case in point — ministers received financial contributions and then changed government policy on vital issues. In other cases peerages were awarded to cash donors, a scandal so great that it led to an 18-month investigation led by Assistant Commissioner John Yates of the Metropolitan Police.

For Labour, though bankrupt, had one priceless asset possessed by nobody else. It controlled access to the resources of the state. Its consistent policy from 1997 was to barter these resources for donations. This methodology sustained Tony Blair in government, but is now being exposed under Gordon Brown.

Though some of the Labour donors during the last decade were thoroughly respectable people, others were less so. Peter Abrahams, a property developer of doubtful credentials, falls into the latter category. Labour high command bent over backwards to make life easy for Mr Abrahams. From appearances Peter Watt, general secretary of the Labour party, seems to have entered into some kind of conspiracy to break the law concerning party political funding. The Political Parties, Elections and Referendums Act, which was made law by Tony Blair in 2000, is categorical that party donors must not use proxies to conceal their identity. It states that failure to provide full and accurate information about the identity of donations to the Electoral Commission is punishable by a fine, or by a jail sentence of up to 12 months.

Mr Abrahams says that he only very recently became aware of the Act. He says he is a private man who was driven by nothing more sinister than a desire to avoid the full rigour of media inspection (an objective which has spectacularly failed). This is just about plausible. Why indeed should a north-eastern property developer bother himself with the niceties of electoral law?

The case of Peter Watt — only the 14th general secretary of the Labour party since Ramsay MacDonald became the first occupant of the post 107 years ago — is more problematic. He too claims that his breach was 'inadvertent', and must have been heartened throughout Monday when BBC news reported this claim without question or apparent irony.

Mr Watt is not only general secretary of the Labour party. He is also the registered Treasurer and therefore the person specifically culpable for any offence committed under the terms of the 2000 Act. Failure to grasp the basic requirements of the law in the very area which was his specific responsibility suggests incompetence on a scale which is very hard to credit.

On Monday Gordon Brown announced an inquiry — the one which reports to Lord Harries — into this catastrophe. Whatever its formal terms of reference this investigation is likely to have certain unstated objectives. The first is to ensure that the previous Blair regime, rather the Brown incumbency, should get the blame — meaning that the hapless Watt bears the brunt of the responsibility. This officially sanctioned story was collapsing by the time The Spectator went to press on Wednesday lunchtime, as it emerged that the circle of knowledge extended very much wider than the office of the general secretary alone.

The second is to ensure that the Labour party — as opposed to Gordon Brown's government — bears the bulk of the damage. But this strategy means failure to address one of the biggest unanswered questions to emerge so far out of this scandal: what did Abrahams expect to get in exchange for his £600,000? According to his own account of events, he is a simple philanthropist who sought anonymity because he shuns the limelight. All this may well be true.

Nevertheless he is also a property developer. It is well-known that such characters seek political leverage in order to secure the planning consents which are the lifeblood of their business. No one is saying Abrahams sought influence in this way. But if this inquiry is to restore trust in politics, as Gordon Brown promises it will, then it must examine very carefully indeed all of Mr Abrahams' political links, both at a national and local level. Otherwise it will leave behind a nasty cloud of suspicion — the kind that Gordon Brown promises to dispel.

Two further points emerge from this week's events. The first concerns the circumstances in which the story became public. Jonathan Oliver, deputy political editor of the Mail on Sunday, was perusing the latest list of Labour donors last Wednesday when he noticed certain irregularities, and took inquiries forward from there. Mr Oliver's diligence has already claimed one highranking politician, and may yet claim more. This was old-fashioned journalism at its very best.

The second concerns the conduct of the Prime Minister. Disturbing reports have emerged that Gordon Brown is rude to his secretaries — or garden girls, as they are known inside Downing Street. He is said to shout at them abusively. On one occasion he is reported to have impatiently turfed one of the girls out of her chair and sat down to use the keyboard himself.

All recent prime ministers — Thatcher, Major, Blair —were loved by the garden girls. All recent prime ministers from time to time endured problems. Only Gordon Brown has vented his frustration on secretaries, who can never answer back or speak for themselves. In the end this intemperate and regrettable conduct may cause him as much damage as Mr Abrahams.

The Triumph of the Political Class by Peter Obome is published by Simon & Schuster