Gordon Brown's backers accused of Hazel Blears smear

• Report claims resignation due to new expenses revelation
• Downing Street tried to 'blacken' Blears's name: source

• Andrew Sparrow, senior political correspondent
• guardian.co.uk, Wednesday 3 June 2009 14.29 BST

Hazel Blears repaid £13,000 to cover capital gains tax on the sale of property in London. Photograph: Toby Melville/Reuters

Gordon Brown's allies were accused of smearing Hazel Blears today after a report appeared claiming her departure was prompted by the prospect of another embarrassing expenses revelation.

At prime minister's questions, the prime minister lavished praise on Blears, saying that she had done "great work" as communities secretary.

But, as soon as PMQs was over, a story appeared on the Daily Telegraph website saying that Blears's departure was "partly triggered by the discovery that she had allegedly avoided paying capital gains tax (CGT) on the sale of another property".

Last month Blears agreed to pay £13,000 to HM Revenue and Customs after it was revealed she had sold a flat in London that she had designated as her second home for the purpose of claiming parliamentary expenses but which she had designated as her main home for tax purposes – enabling her not to pay CGT.

Blears did not break any rules. But all the main parties now say it is unacceptable for an MP not to pay capital gains tax on the sale of a property part-funded by parliamentary allowances.

The Daily Telegraph story said that Blears avoided paying capital gains tax twice, not just once, and that the £13,000 covered the cost of unpaid capital gains tax on two properties. The article also claimed that Blears was "concerned that it might be disclosed that there was another property deal from which she gained".

But a source close to Blears denied this was a factor in her resignation. He said Blears had made it clear in a statement published on her website two weeks ago that the £13,000 related to unpaid tax on the sale of two properties.

In her statement on the website, Blears referred to selling properties in Kennington and Shad Thames and said that she had written a cheque to the Inland Revenue "for the equivalent amount had I been liable for capital gains tax when I sold the flats".

The source said Brown's allies were to blame for the story. "Downing Street waited until after Hazel had announced her resignation and then they tried to blacken her name. The spirit of Damian McBride lives on," he said.

McBride was the Downing Street spin doctor who resigned earlier this year after it was revealed he had written emails containing untrue and offensive allegations against senior Tories.

Grant Shapps, the Tory housing spokesman, also accused Downing Street of trying to smear Blears. "No 10 does not seem to have changed," he said on Radio 4's The World at One.

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