Britain’s elections watchdog is facing a backlash after it rejected calls for a fresh investigation into claims Keir Starmer’s chief of staff ‘hid’ more than £700,000 in donations.

In a controversial move, the Electoral Commission said it would not reassess why Morgan McSweeney failed to declare the donations to his think tank Labour Together, which was instrumental in Sir Keir’s rise to the Labour leadership.

The move throws a lifeline to the Prime Minister, who has faced growing questions about his top aides conduct in recent days.

It came despite the publication by the Daily Mail of a leaked email in which a top Labour lawyer advised Mr McSweeney to present the episode as an ‘admin error’.

Labour Together was fined In September 2021 after Electoral Commission found more than 20 breaches of donations law.

In a statement, the Electoral Commission said: ‘We investigated the late reporting of donations by Labour Together and published our findings in 2021. We determined multiple offences including those relating to the late reporting of donations with a cumulative value of £739,492, as well as the failure to appoint a responsible person. The fine was significant and reflects the seriousness of the offences determined, for which no reasonable excuse was put forward.

‘Earlier this week the Conservative Party wrote to us with concerns that other offences had been committed. We have thoroughly reviewed this information and found no evidence of any other potential offences. We are confident that the initial determination and sanction were appropriate.

‘We are therefore not reopening the investigation.’

The Conservatives had asked the Commission to assess whether Labour Together had committed a further offence by deliberately withholding information from the original inquiry, which would potentially be a criminal matter.

In a letter of reply, the watchdog said the offence did not apply because the original investigation was conducted on a voluntary basis.

The Conservatives have argued that Mr McSweeney should be brought to book for huge sums in ‘hidden’ donations.

Tory chairman Kevin Hollinrake said the Electoral Commission had got it wrong.

Mr Hollinrake said: ‘The Electoral Commission’s decision not to investigate McSweeney is wrong. The Commission must now publish all of their Morgan McSweeney Files to ensure the public has full transparency.

‘It is clear that Morgan McSweeney deceived the Electoral Commission, but has dodged a criminal offence on a technicality. This loophole won’t wash.

‘The Conservatives uncovered clear evidence of McSweeney’s industrial scale cover up of a slush fund used to install Keir Starmer as Labour Leader. Despite the denials of Labour and Nothing to See Here Keir, it is clear that the Prime Minister’s Chief of Staff still has very serious questions to answer.

‘This is not over, we will continue to reveal more evidence, and continue to push for a full investigation by the Parliamentary Standards Commissioner into Keir Starmer. The British public deserve the full truth, not another cover-up, and the Conservatives will continue to fight until they get that.

The shock decision came after the Daily Mail revealed Mr McSweeney ‘hid’ a £50,000 donation on the very day he was told he had a legal duty to declare his funding.

Official documents reveal that Labour Together received the cash injection on the same day the Electoral Commission confirmed in writing that he was required by law to report all donations of more than £7,500.

Despite the warning that donations must be declared within 30 days, it was kept secret for more than three years, by which time Mr McSweeney was working as Sir Keir’s chief of staff.

The news raises fresh questions about Labour Together’s claim that its failure to report more than £730,000 in donations in a three-year period was the result of ‘human error and administrative oversight’.

Morgan Mcweeney with Sir Keir Starmer in Downing  Street

Electoral Commission records show that the watchdog warned Mr McSweeney in November 2017 that he had a legal duty to declare donations – and told him to write a letter to explain why he had not been doing so. Mr McSweeney argued that Labour Together was not covered by the law as it was not involved directly in campaigning.

But the Commission wrote back to him on December 6, 2017, to confirm that the think-tank was considered a ‘members’ association’ under the law and had a duty to declare its funding streams. It told him: ‘As the board of Labour Together is mainly made up of Labour Party members, it is considered to be a Members’ Association… under the Political Parties, Elections and Referendums Act 2000, Members’ Associations fall under ‘regulated donee rules’…

‘For any permissible donation, a Members’ Association has up to 30 days from the day they accept it to report the donation.’

Despite the clear warning, Mr McSweeney failed to report a £50,000 donation received that day from hedge-fund boss Martin Taylor. It was not declared until February 2021, more than three years later and almost a year after Mr McSweeney left.

A leaked email revealed this week that Mr McSweeney told Labour lawyers he spoke to the Electoral Commission in ‘early 2018’ and was advised that Labour Together did not have to declare donations.

But top Labour lawyer Gerald Shamash told him that neither the watchdog nor Labour Together had any record of the conversation taking place. The scale of the undeclared donations meant there was ‘no easy way to explain how Labour Together finds itself in this situation’, Mr Shamash said.

He advised that it might be better to portray the episode as an ‘admin error’ and ‘not refer to you at all’ – a course the think-tank eventually deployed.

The crisis threatened to widen yesterday after Housing Secretary Steve Reed refused to answer questions about what he knew about the donations.

Instead, Mr Reed, who was on the board of Labour Together at the time, told BBC Radio Four’s World At One that the matter was ‘closed’ following the Electoral Commission’s first probe in 2021, in which it fined the think-tank a ‘relatively small’ £14,250.

Labour Together said it ‘proactively raised concerns’ about the failure to declare donations and ‘fully co-operated’ with the Electoral Commission investigation.

The Electoral Commission said its original investigation ‘proved beyond reasonable doubt that failures by the association occurred without reasonable excuse’. It added that it was considering the Tories’ request to reopen the inquiry.