The outgoing Prime Minister is charged with plotting to sever Labour's historic links with the trade unions as a central part of his legacy.

His bequest to Britain would be not to change the party he leads but to destroy it, emasculating Labour as a force still concerned about working people.

New Labour reduced to a SDP Mk II, an organisation that came and went in the 1980s, would be the plaything of Middle England and about as radical as a church fete.

Had Blair wandered into a gathering of his own MPs this week, the leader would have encountered a lynch mob accusing him of high treason.

The ugly meeting behind the supposed privacy of the closed doors of a Commons committee room vowed to resist to the bitter end proposals to cap union donations at £50,000.

"What an irony," moaned Dennis Skinner, the Beast of Bolsover, "that trade union money is the only clean money in politics and it's under attack because of loans-for-Lordships."

Eccles MP Ian Stewart vowed to "fight it to the death" while North Durham's Kevan Jones suggested "the lights are on but no one is at home in Downing Street".

Chorley's Lindsay Hoyle demanded "people in the dark cellar of No 10 must be sorted out." And Blaydon's Davey Anderson, a ministerial aide supposed to loyally back the leadership, complained: "Someone at No 10 is doing the Tories' dirty work for them."

The Labour MPs suspect ultra-Blairites in No 10 are encouraging an inquiry into party funding to shackle unions - and permitting the pockets of taxpayers to be picked to finance parties.

Old duffer Sir Hayden Phillips, a retired mandarin handpicked by Blair to investigate funding, favours adopting the Tory idea of a £50,000 ceiling.

Bracketing unions, which collect money from millions of individual workers, with billionaires would be grossly unfair - as well as offensive.

Indeed, political funding expert Professor Keith Ewing warned the proposals represent the biggest attack on Labour since the 1911 Osborne Judgment when a judge banned unions funding the party.

The Premier refused to comment on the crisis yesterday, dodging questions until Phillips delivers his report next year.

Charitable Labour MPs maintain that Blair is struggling to squeeze the funding genie back in the bottle and has little influence over Phillips.

Less charitable Labour MPs -whom my sums put in the majority - accuse the PM of plotting one last malevolent strike against a movement that never loved him.

Either way, the Premier will change politics for ever. But not for the better, unless he is stopped.

See also:

Blair supports plan to weaken unions' grip on party, MPs told

The Guardian: December 12, 2006
Will Woodward, chief political correspondent

· Allegation that PM backs overhaul of party funding
· No 10 denies claims over Phillips inquiry findings

Tony Blair is to back a sweeping overhaul of party funding which will curb the influence of the unions over the Labour party, MPs were told last night.

Union members would be required to agree to annual donations to the party through their unions, it was alleged at a private meeting at Westminster. The total donation made by each union would also be subject to a cap, under the proposals from Sir Hayden Phillips, the Whitehall mandarin brought in by the prime minister to make recommendations on the future of party funding after the cash-for-honours affair.

Sir Hayden is consulting on whether to propose a cap of £50,000 a year, as the Tories have proposed, although one source said last night that the limit could go as high as £250,000. Publication of his report, originally scheduled for this month, has been delayed until the new year.

Current rules require unions to ask members every 10 years whether they want to contribute to a political fund. The unions then take money from the political fund and distribute it as they wish. The arrangement enables union leaders to wield considerable financial clout - and political pressure. But MPs believe Sir Hayden will propose "individualisation", where each union member opts in or out of contributing to political parties.

A meeting of the trade union group of Labour MPs heard from Professor Keith Ewing from King's College, London, who is advising the unions on the Phillips inquiry. One source familiar with the meeting said last night: "The MPs went ballistic." Another said: "It will mean the end of the Labour party as we know it."

According to sources, it emerged during the meeting that John McTernan, the prime minister's political secretary, met Sir Hayden last week. It was claimed that he had told him that Tony Blair would support these proposals. Mr McTernan could not be contacted last night.

Downing Street insisted last night that no recommendations have yet been made by the Phillips inquiry. But according to some critical sources inside the Labour party, Sir Hayden is openly touting these plans with Downing Street backing.

A senior government source stressed that Prof Ewing was not on the Phillips inquiry. One warned that it would be "premature" to speculate on the findings when they have not been completed. It may be that the MPs have been misinformed about Sir Hayden's intentions.

Critics believe Tony Blair is intent on seeking a dramatic restructuring of the relationship between Labour and the trade unions, as part of his "legacy". In his first months as Labour leader, Mr Blair stamped his authority on the party by announcing his plan to scrap clause 4 of the Labour party's constitution.

The Labour and Conservative parties ran up record deficits of nearly £30m between them to fight the last general election. Labour's liabilities include the costs of a bank loan secured on its old HQ in Old Queen Street, Westminster.

A huge swathe of Labour MPs and the trade unions are likely to resist any fundamental restructuring of party funding as described. Gordon Brown, the chancellor, has strong links to the trade unions and could veto the plan. But some leftwing Labour MPs believe Mr Blair may calculate that he could get such measures through parliament with Conservative and Liberal Democrat support.

See also:

Funding plans will end bankrolling of Labour by union leaders

The Guardian: December 13, 2006
David Hencke and Will Woodward

· £50,000 donations cap proposed in review draft
· Workers paying party levy to be registered as donors

All 3.5 million workers who opt to pay an annual £3 levy to the Labour party will have to be publicly registered as individual donors under plans sent to the three main parties by Sir Hayden Phillips, chair of the independent party funding review.

The draft proposes a £50,000 cap for all individuals and organisations, which will more or less end the bankrolling of Labour by union leaders. Sir Hayden says his proposals "will be challenging for trade unions, they will require new systems and new management arrangements".

The draft, dated December 4, scraps the plans put forward only last month for a £250,000 cap on trade union donations, and will inhibit the political power of union barons. The change would, however, allow Labour to take money from union members over and above the £50,000 cap. That proposal is being fiercely opposed by the Tories.

There will be an emergency meeting of Labour's national executive committee tomorrow to discuss the plans.

Sir Hayden also recommends a continuous cap on party spending throughout parliament and a ban on anonymous bodies donating to political parties. Such moves would hit the Conservatives; they have long used groups such as the Midlands Industrial Council and the Yorkshire and Humberside Industrial Council as front bodies for donors.

David Cameron, the Tory leader, wants a cap on donations but not on spending. He argues that a cap on spending would give an advantage to incumbent MPs able to use parliamentary expenses to promote themselves in their constituencies outside election time.

Under Sir Hayden's proposals each of the 3.5 million trade unionists paying the party levy will find their name and address passed to the Labour party where they will be registered as an individual donor; every year the party will have to write to them asking if they wish to remain a donor. A similar registration system will exist for constituency Labour parties where unions give £6 for each 100 members, effectively restricting union influence in these parties where the four unions Amicus, GMB, TGWU and Unison, play a big role. Each union member would be able to personally donate up to £50,000 a year to the party.

The proposals provoked alarm at a meeting of the Labour trade union group on Monday night. Yesterday a trade union source said: "These proposals are worse than those put up by Norman Tebbit to force people to check in to support Labour." But senior party sources insist that Tony Blair and senior ministers have no intention of breaking the union link. Hazel Blears, the party chairman, calls it the "red line" she will not cross.

One Labour official insisted Sir Hayden's proposals were not set in stone but merely areas for discussion. But sources close to the inquiry insisted Sir Hayden was determined to push ahead with the plans in his final report next month.

Mr Blair and Mr Cameron discussed the inquiry during a private meeting last month, but sources insisted they had not held full talks on them. At his monthly press conference yesterday Mr Cameron said that consensus was not yet in sight. He is still holding out for the cap on union and company donations to be the same.

Mr Cameron said: "I don't think there's any argument for treating different organisations separately. I'm a reasonable person, I'll listen to arguments, but so far I am not convinced. I think we ask ourselves, what is it the British public want? I think they do want a limit on these big donations. They want us to get away from this feeling that somehow parties can be bought by rich individuals or rich trade unions or rich businesses."

He said any deal should be between the politicians and the public, not him and Mr Blair: "A deal which says look, we will clean up this mess of party funding." In exchange for a modest rise in state funding, Mr Cameron said, parties should agree to a cut in spending in a general election year and a cut in the size of the Commons.