David Cameron has swept aside private objections from Nick Clegg to appoint Lord Ashcroft, the Tories' multimillionaire former treasurer, as the main adviser to a government review of Britain's military bases in Cyprus.
In the latest sign of tensions in the coalition, the prime minister dismissed a personal warning from Clegg that Ashcroft carried too much political baggage after serving in the upper house for a decade while enjoying non-dom tax status.
Lord Oakeshott, the former Lib Dem Treasury spokesman who campaigned for the removal of non-doms from parliament, said: "Even Obama's visit can't hide this sinister news, which Liberal Democrats will find deeply offensive … Lord Ashcroft's qualifications for this task are his collection of old VCs [Victoria Crosses], years of private plane and yacht rides with William Hague, and a decade of vast Tory donations as a secret non-dom."
Liam Fox, the defence secretary, announced that Ashcroft would serve as the unpaid senior independent adviser to the review of Britain's sovereign military bases in Cyprus. More than 3,000 troops are stationed on the Mediterranean island.
Ashcroft will work alongside Patrick Mercer, the former shadow security minister. The review is due to report to the government by the end of this year.
Liberal Democrat sources indicated that Clegg was unhappy with the appointment of Ashcroft, who enjoyed non-dom tax status for a decade after his appointment as a peer, in 2000.
One Lib Dem source said: "Nick raised concerns about the appointment in an informal way with the prime minister. It is not the [one] we would have made. But you can't go to the wall on every minor appointment. The other side really, really wanted to make this happen. You can't fight each battle to the death. The other side were adamant this should happen."
Labour condemned the appointment. Jim Murphy, the shadow defence secretary, said: "People will be surprised that such a contentious and controversial character has been put in charge of something as strategically important as British bases in Cyprus.
"The Tories' major donor should not write government policy. Many in the armed forces will be bewildered by this decision. There needs to be ministerial involvement in this. Military expertise, not the self-interest of the coalition parties, must drive the study."
In his statement, Fox said: "As part of the follow-on work to the strategic defence and security review, the prime minister, the foreign secretary and I have agreed that a separate study on the British sovereign base areas in Cyprus should be undertaken.
"The study will be informed by independent advice, and Lord Ashcroft has agreed to undertake the role of senior independent adviser, along with Patrick Mercer MP. The study is expected to be complete by the end of 2011."
Clegg launched a strong attack on Ashcroft during last year's general election after it emerged that Ashcroft had remained a non-dom – a special status that meant he paid UK tax only on his UK income – for a decade after he was appointed to the House of Lords in 2000. There was nothing illegal at the time about sitting in the upper house as a non-dom; peers and MPs are now automatically classified as full UK taxpayers.
"I think if you are seeking to influence the outcome of the next general election … then it is wholly wrong that you basically seek to pay taxes only partially in this country," said Clegg.
But in 2000, Ashcroft offered William Hague, then Tory leader, a "clear and unequivocal" assurance that if granted a peerage he would become a permanent resident in the UK by the end of that year. His peerage was approved within a week.
The Tories were determined to appoint Ashcroft to the Cyprus review because they believe he has a long track record in supporting the military. His Victoria Cross collection, the largest in the world, is on display at the Imperial War Museum. Ashcroft recently donated £1m to the Bomber Command Memorial appeal.
Oakeshott complained that the law has still not been changed to ban donations to political parties by non-doms. "The government has still not brought in the simple order needed to ban non-dom donations to political parties under the 2009 Political Parties and Elections Act," he said. "The Queen's Speech promised to remove big money from politics, not reward big donors. What on earth is his hold over Cameron and Hague?"
The Tories said they were not troubled by Clegg's intervention. "Yes, the Liberal Democrats could not support the appointment, but they did not go to the wall on this," a source said. "Lord Ashcroft will do a good job. He has vast experience on reorganisations."
