Blair's aides call in their own lawyers

Downing Street aides embroiled in the 'cash for honours' inquiry have hired their own lawyers in a sign that the police investigation is dividing Tony Blair's inner circle.

Ruth Turner, the Prime Minister's head of government relations, and his chief of staff, Jonathan Powell, initially used the Labour Party's in-house lawyers, but are understood to have switched to their own legal representation .

It is not unknown for individuals within Downing Street to seek their own legal advice - Alastair Campbell did so during the Hutton inquiry - but insiders say that it underlines fears that the interests of Blair's tight-knit inner circle may diverge from each other.

Professional rules mean that solicitors cannot act for two clients where there is even only a potential conflict of interest. Separate lawyers would also be necessary if anyone involved in the inquiry was to claim in defence that they were acting under orders from above.

'One of the most interesting things is how people have started to get their own legal advice,' said one Whitehall source. 'Ultimately, if it is going to be a case of the police saying "We find X that is incriminating", the only defence might be "I was told to do it".'

Sir Christopher Evans, the biotech tycoon, who loaned Labour o1m, has now been repaid several hundred thousand pounds by the party and been told that the rest of the cash will be paid in instalments over the next few months. Evans, the only lender to be questioned under caution, was asked by detectives about a note in his handwriting suggesting he had been asked if he wanted 'a K [knighthood] or big P [peerage]'.

The Observer can reveal that the note was actually made prior to 2000, not in the run-up to the 2005 honours list on which the police inquiry is focusing. It came before Evans got his 2001 knighthood or made his loan. However, any proven offer of an honour for cash during that period may still be liable for prosecution under a 1925 act outlawing both the sale of honours and soliciting for them. Evans has insisted that his honour was not connected to donations but because he was a leading practitioner in his field.

Angus MacNeil, the Scottish National Party politician who sparked the police investigation, said the authorities should be as concerned about allegations of knighthoods being sold as peerages.

'Everybody has been focusing on the peerages and have taken their eyes of the ball when it comes to knighthoods,' he said. 'It is clear if anybody was offering or soliciting knighthoods for donations this would also breach the 1927 act and I assume the police are scrutinising this.'

The Labour Party has extended bank loans worth over o6.7m due for repayment over December and January. According to records lodged with the Electoral Commission, it was due to repay o2m from the Unity Trust Bank on 13 December, while another o3.5m from the Co-Operative Bank falls due on New Year's Eve.

Another o1.2m from the latter is listed as due for repayment on 20 January. A party spokesman refused to comment, but sources said the money was regarded essentially as an 'overdraft facility' renewable by agreement.

Three of the four donors at the heart of the investigation - Chai Patel, Sir David Garrard and Sir Gulam Noon, who were all recommended for peerages by Downing Street and then blocked by the Lords-appointments commission - are due to be paid back next year, the fourth, Barry Townsley, due to be repaid in 2008.

The Observer