The Observer newspaper is standing by its story on Scottish Secretary Dr John Reid and the financing of Labour's Scottish elections campaign.

The paper reported at the weekend that Dr Reid had used public money to pay for the party's campaign.

The Observer said it would be sending a formal letter of complaint to the Westminster Parliamentary Commissoner for Standards, Elizabeth Filkin.

The letter calls on her office to mount an investigation into the allegations.

Legal advice

Sources close to Dr Reid, who has denied the claims, said he had not ruled out approaching the Press Complaints Commission and taking legal advice about the story.

Dr Reid has said there was "no truth whatsoever" in the allegations that he had paid full-time party election campaigners as researchers.

And he said he had "nothing to hide" if the allegations were reported to the Parliamentary Commissioner for Standards.

A spokesman for Dr Reid said: "As far as John Reid is concerned the Observer makes allegations which are totally without foundation.

"No public money was used by him for the purpose alleged."

Dr Reid is said to have paid his son, Kevin, who was at the centre of the Lobbygate saga, as a part-time researcher while he was working full-time for Labour in the run up to the Scottish elections in May 1999.

And it was claimed he and fellow Scottish Labour MP John Maxton (Glasgow Cathcart) had between them employed three people using the arrangement, to subsidise the Holyrood campaign.

Son's employment 'cleared'

But Dr Reid's spokesman said: "Between May and October 98, he did employ Kevin Reid on a part-time basis.

"In October 98, Kevin Reid was given a full-time contract by the Labour Party and as soon as he was, payments from John Reid ceased immediately.

"That was cleared by the Fees Office of the House of Commons. The part-time contract which he had at the time with the Labour Party is a matter for the Labour Party."

The spokesman said Kevin Reid had been employed to help with constituency business, while another woman had been paid to stand in for Dr Reid's diary secretary who was seriously ill.

He added: "She was a volunteer with the Labour Party and was not paid for her work there.

Lobbygate affair

"Dr Reid has nothing to hide if the matter is reported to the Ombudsman. Everything was totally above board."

The spokesman said it was an arrangement common in every party to have Parliamentary researchers who worked part-time for the party.

The allegations follow the Lobbygate affair, in which it was claimed Kevin Reid, while working for lobbying firm Beattie Media, had offered access to Scottish ministers.

An investigation by the Scottish Parliament's Standards Committee concluded nothing improper had taken place.