Lord Sainsbury

The prime minister has defended big money gifts to political parties following a row over Lord Sainsbury's donations to Labour.

Speaking at his monthly press conference in Downing Street, Tony Blair said that multi-million pound donations are "contributing to democracy" rather than "something 'dodgy'".

Earlier this month Labour declared a £2.5 million pound cheque from Sainsbury to help service the huge overdraft accrued from the purchase of the party's new office building in London.

That brought the total of the supermarket tycoon's gifts to Labour to £11.5 million in the five years since Labour introduced the compulsory declaration of political gifts.

Pressed on whether he felt "comfortable" that one individual had contributed so much, Blair said he was "satisfied" Labour had nothing to hide.

"We have got the first transparent rules on party political funding we have ever had in this country," he said.

"Before we came to power no one had the faintest idea how political parties were financed or not.

"The Labour Party was pretty transparent about it, the Conservative Party was not transparent about it at all.

He then went on to praise donations as virtuous in their own right.

"I do think at some point we need to come to an understanding that the people who fund political parties, they are not doing something 'dodgy', they are actually contributing to democracy," he said. "Otherwise political parties can't function."

Warning of the alternatives to private donors with state funding looking unlikely to materialise soon, Blair told journalists he did not want to rely entirely on trade unions for support.

"I certainly don't want a situation where the Labour Party is completely dependent on trade union funding as it was 10 years ago," he made clear.

Labour is currently negotiating with a group of large unions on a long term funding package to put the party on a more stable financial footing, rather than dipping heavily into the red between general elections.

The failure to come to an agreement forced officials to lean on Sainsbury once more with the mortgage on their Old Queen Street building thought to be more than £4 million.

Both the Conservatives and some Labour left wingers accused the peer of buying his seat in government.