Prime Minister Tony Blair's personal fund-raiser Lord Levy is to give evidence to an influential MPs' committee looking into allegations of honours for loans, it was announced yesterday.

Also to be questioned by the House of Commons Public Administration Committee are two of the wealthy individuals who lent money to the Labour Party around the time of last year's general election.

Priory Clinics founder Dr Chai Patel and property developer Sir David Garrard were both nominated for peerages shortly after they lent large sums to Labour.

The announcement came as a second cross-party parliamentary committee - the Commons Constitutional Affairs Select Committee - revealed it was launching its own inquiry into the way political parties are funded.

The Public Administration Committee announced last week that it was extending its ongoing inquiry into ethics and standards to cover the question of whether the scrutiny of honours and peerages for political service is working.

It will take evidence from Dr Patel, who lent Labour £1.5 million, and from Sir David, who lent £2.3 million. Their evidence will be given at a hearing in the House of Commons on March 28.

Lord Levy will face questions on May 2, and is also expected to give evidence to the Constitutional Affairs Committee.

Dr Patel has said that he offered Labour a large gift last year, but was asked by Lord Levy to convert it into a loan, which does not have to be declared to the Electoral Commission for publication in its regular register of donations to parties.

Chancellor of the Exchequer Gordon Brown committed himself to a thoroughgoing reform of the systems of party funding and nominations for honours in order to reassure the public that everything being done was "above board".

Mr Brown pointedly distanced himself from the secret loans totalling £14 million obtained by Lord Levy in the run-up to last year's General Election.

He said he wanted changes, not only to the rules on party funding, but also on the code of conduct for Ministers and the MPs' Register of Interests.

"A new system has got to be put in place to deal with the problems that have emerged, after what were quite big reforms we put in in 1997, and afterwards to have the declaration of donations and no foreign donations and more transparency," he said.

"We have got to do more and I am committed to putting a new system in place, because people must know that decisions are made that are above board and seen to be above board."

A spokesman said the inquiry launched by Mr Blair last week, under the chairmanship of Sir Hayden Phillips, would seek to resolve all the issues surrounding party funding.

The Constitutional Affairs Select Committee will look at how well the current system is working and the possibility of reform, said committee chairman Alan Beith. An increased element of State funding will be among the options considered.