Pressure for inquiry into Forgemasters scrapped loan

Senior Labour politicians demanded a probe into the "murky" decision to pull the funding days after Sheffield industrialist Andrew Cook had written to Business Minister Mark Prisk claiming the loan was unnecessary and possibly illegal.

Downing Street sources dismissed suggestions of any wrongdoing as "laughable" and insisted the decision to axe the loan – agreed by Labour weeks before the General Election – was made by Liberal Democrat Ministers who were unlikely to have been swayed by a Tory donor.

But as well as donating 650,000 in cash to the Tories since 2005 and another 88,000 in flights, travel and sponsorship, it has also emerged that Mr Cook has supplied a private plane for Mr Cameron to make 23 journeys since 2007, sparking questions over whether the Prime Minister was aware of the correspondence.

The Prime Minister's spokesman insisted yesterday that the decision to scrap the loan was made purely on grounds of affordability, and sources said Mr Cook's status as a major donor had "no bearing" on the decision which led Forgemasters to shelve its plans to build a new forging press to manufacture parts for new nuclear power stations.

Deputy Prime Minister Nick Clegg, the Sheffield Hallam MP who has been fiercely criticised by Labour over the axing of the loan, said in an interview: "It's constant muck-raking from Labour MPs who won't live up to their own responsibility in making a number of promises with money they didn't have."

But Shadow Business Secretary Pat McFadden last night demanded that the Government publish a value-for-money review undertaken before the loan was axed as he wrote to Business Secretary Vince Cable demanding to know why the Forgemasters deal was pulled when other projects were allowed to go ahead.

He also demanded the coalition withdraw claims the loan had been offered in the knowledge the money was not available after producing a letter from a senior civil servant confirming a proper system of controls and advice was in place at the time the deal was agreed.

The bitter political battle over the Forgemasters deal exploded with the release of dramatic emails – revealed in yesterday's Yorkshire Post and obtained by Sheffield MPs Angela Smith and Clive Betts – which showed Mr Cook, chairman of steel firm William Cook Holdings, had written to Mr Prisk soon after the Government launched a review of projects approved by the previous administration.

The loan would have helped Forgemasters become a world leader in civil nuclear manufacturing but Mr Cook told the Minister it was "probably unnecessary and possibly illegal under EU rules" after taking his own legal advice.

He stressed he had been "the largest donor to the Conservative Party in Yorkshire" since 2005, and acknowledged he was specifically targeting Mr Prisk, a Tory, rather than his boss, Liberal Democrat Mr Cable, whom he said might have found the issue "a difficult nettle to grasp, being as (Lib Dem leader) Nick Clegg is a Sheffield MP".

Rotherham MP Denis MacShane said the affair "now stinks to high heaven" while Labour leadership contender Ed Miliband, the Shadow Energy Secretary and Doncaster North MP, said the deal was becoming "murkier and murkier".

Mr Miliband added: "It is extraordinary that a top Tory donor has been lobbying the Government against the Forgemasters loan."

Rosie Winterton, Shadow Leader of the Commons and Doncaster Central MP, demanded to know whether Mr Cameron had been aware of the letter, but a No 10 spokesman refused to be drawn.

He said: "The decision not to proceed with the loan to Sheffield Forgemasters was made by the Business Secretary and the Chief Secretary to the Treasury entirely on the facts of the case."

Officials insisted the decision was taken by Mr Cable and Chief Secretary to the Treasury Danny Alexander, another Lib Dem.

A Number 10 source said: "The idea that two Liberal Democrat Ministers could have been influenced by a Conservative donor is laughable.

"This is a desperate ploy by Labour to muddy the waters over Sheffield Forgemasters."