Cameron and Blair discuss party funding

David Cameron and Tony Blair will be meeting today to discuss a new way of funding political parties in the wake of the loans for peerages row.

The prime minister yesterday said he believed a "complete overhaul" of the system was needed, after a series of allegations that parties were hiding influential backers.

Currently, donations over £5,000 have to be declared to the Electoral Commission, and are then made public, but loans made on a commercial basis need not be.

After it emerged that as number of major contributors to the Labour party were being nominated for peerages, and further allegations that they were being given preferential treatment – which the party denies – there have been widespread calls for change.

The Electoral Commission has now called for full details of all contributions to political parties, whether in loans or donations, and the government has promised change the rules to ensure all loans have to be made public.

The issue is particularly urgent as Scotland Yard is also investigating possible breaches of a 1925 act prohibiting the sale of honours by both the Conservatives and Labour, and will be looking at possible charges of corruption.

Today's meeting comes at the request of Conservative leader Mr Cameron, who last month published plans to reform party funding and "restore trust in politics".

These include a £50,000 cap on donations from individuals, trade unions, corporations and institutions and ban all forms of loans to parties, except those from financial institutions on fully commercial terms.

Mr Cameron also called for "substantial reform" of the honours system and the way members of the House of Lords were appointed – something that is already being reviewed by a parliamentary committee.

Last month, a report led by Helena Kennedy QC recommended that political parties be state funded, and this is likely to be considered in today's talks. Deputy prime minister John Prescott is one of those in favour of this option.

Last week the Tories released the names of 13 backers who loaned the party £16 million for the general election campaign last year, as well as details of loans totaling £4.5 million from constituency Conservative associations.

They have promised to give the names of a number of other backers who leant the party £5 million, but which the Tories paid back recently because they did not want their names made public, to the Electoral Commission.

It came after Labour made public the names of 12 individuals who had loaned the party almost £14 million, all of them on a commercial basis.

However, the Electoral Commission has now called for proof that all these loans were made on a commercial basis, something that both parties have promised to comply with.