The influential DTLR select committee is to investigate the funding of political parties, it was announced yesterday.

Labour MP and co-chairman of the committee Andrew Bennett, denied it was a panic reaction to reports of the letter written by prime minister Tony Blair in support of a bid for the Romanian steel industry.

A former adviser to Robin Cook last night questioned the role of Blair's advisor Jonathan Powell, claiming that he should have known about the donation by steel magnate Lakshmi Mittal.

"This is not a panic response to the issues at the moment. We have planned for some time to have this kind of inquiry but the best inquiries are held when people are talking about an issue so this is a very appropriate time to be doing this," he said.