Labour peer faces Lords sleaze probe into his expenses claims

Labour peer Lord Paul is to be investigated by a former MI5 chief over allegations that he wrongly claimed for Parliamentary expenses, the Standard can reveal.

The millionaire steel magnate, who has come under fire from the Tories for his "non-dom" tax status, will have his case probed by Eliza Manningham-Buller's House of Lords sub-committee.

In a bid to head off embarrassment to Gordon Brown, Lord Paul today announced that he would follow Tory peer Lord Ashcroft and start paying full UK taxes. But the Clerk of Parliaments has decided to refer the matter to the sub-committee on Lords' interests, which will look into allegations over the peer's claims for "overnight allowances".

If guilty of abusing Parliamentary rules, Lord Paul faces a maximum penalty of a five-year expulsion from the Lords.

The move came after the Indian-born businessman, whose company has donated more than £145,000 to Mr Brown and to Labour, confirmed that he had been under police investigation for alleged expenses fiddling.

The Met has now told him he will face no action. Since the matter is no longer sub-judice, the House of Lords decided it could launch its own probe, although it is not expected to be completed before the general election. The Tories have long argued that Lord Paul's "non dom" status is as controversial as that of Lord Ashcroft.

Earlier Lord Paul announced he was giving up this status. His decision comes a week after Tory peer Lord Ashcroft admitted being non-domiciled and said he would start paying full taxes once new laws were brought in to ban non-doms from the Lords.

Only last month, Lord Paul said he had not decided whether to pay taxes in full or resign from Westminster. But in an interview with the New Statesman, he claimed: "I will be paying all the taxes. I will be qualifying to be in the House of Lords."

However, when asked how big his tax bill would be he responded: "Definitely not millions of pounds, or hundreds of thousands." Lord Paul's Caparo Industries has given £113,000 to Labour over the past 13 years and £45,000 to Gordon Brown's leadership campaign.

He denied his case was like that of Lord Ashcroft's, who has bankrolled the Tories with more than £5 million and pledged to become a permanent resident in return for his peerage being approved. Scotland Yard began examining Lord Paul's expenses at the end of last year.