Peter Watt is defended as "straightforward and conscientious"

His predecessor, Matt Carter also left after less than two years in the post. He was subsequently questioned by police about his involvement in the cash-for-peerages affair.

Youthful-looking Mr Watt had two huge tasks ahead of him: to put the Labour Party back into the black and to draw a line under any more party funding controversies.

His qualifications for the latter job were impeccable. As the party's previous Director of Finance and Compliance he was thought to be an expert on the complex regulations governing political funding.

Massive spend

Ironically, his CV has now mutated into a gift to Labour's enemies, who can now accuse the party of an "institutionalised evasion of the rules." They say because of his background, Mr Watt must have known what he was doing when he approved �600,000 of donations from property developer David Abrahams.

What I do know is that Peter has been under immense strain because of the number of issues he had to deal with Gary Titley, MEP

It could be argued that the root cause of all Mr Watt's problems was Labour's massive spend during the 2005 general Election - which left the party with �27m of net liabilities.

Radical measures were needed, and Mr Watt, 37, oversaw a radical restructuring of party finances - including the selling of Labour's Queen Street headquarters and a review of staffing levels. There were also a number of staff redundancies. Labour's Spring Conference this year was cancelled - although the Party denied at the time this was a cost saving measure.

Labour's money woes have been exacerbated by declining membership levels since the party's high point in the mid-1990's. The unfavourable publicity generated by cash-for-peerages was also seen as a factor that scared off potential large-sum donors.

This made it imperative that Labour hang onto its other main source of funding - contributions from trade union members, which brings in around �8m annually.

Talks stalled

Newspaper reports earlier this month claimed that Mr Watt and the Justice Secretary Jack Straw rejected any changes to union funding which might have led to less money for Labour.

This was allegedly one of the factors leading to the stalling of all-party talks on a new system of funding being overseen by independent chairman Sir Hayden Phillips.

According to Labour National Executive member Gary Titley MEP, it was the huge pressure on Mr Watt to both balance the party's books, and come up with a workable future funding system that led to him missing the significance of David Abraham's donations.

Mr Titley said: "What I do know is that Peter has been under immense strain because of the number of issues he had to deal with.

"He's been so tied up with loans, peerages, and funding that this particular donation must have slipped to the back of his mind."

Private life

There's general agreement within the party that Peter Watt - a former NHS nurse who worked his way to the top of the party in just 10 years - is a straightforward and conscientious man.

Although he wasn't seen as the favourite for the General Secretary job when he applied in 2005, he impressed the NEC selection committee with a "committed and competent" presentation.

His private life is seen as above reproach: married since 2003 and living in Surrey, he and his wife are active foster-carers, as well as having three children of their own.