The Conservatives are in financial dire straits because Michael Howard's planned new fundraising foundation, designed to end the controversy over political donations, is facing legal problems.

The Tories have just posted a £2.5 million loss from last year and the party has no reserves, so wealthy backers will have to make large loans to fund the local and European elections campaign.

According to the Times, members of the party board have raised legal objections to the foundation which was intended to safeguard the £6 million to £8 million originally expected from the sale of Conservative Central Office.