27/05/2012 11:19 BST | Updated 27/05/2012 13:07 BST

Expenses Scandal: Baroness Warsi Faces Calls For Inquiry

Conservative co-chairman Baroness Warsi is facing calls for an investigation into her expenses after allegations that she claimed £12,000 for overnight accommodation when she was actually staying at a friend's house rent-free.

Labour MP John Mann said he would be asking the Lords commissioner for standards to investigate the omission, while Shadow business minister Chuka Umunna called for an inquiry.

There was little sign of support from Downing Street or fellow ministers. Tory deputy chairman Michael Fallon said the peer "believes" she acted within the rules, but admitted that the controversy was embarrassing for the party.

Labour MP John Mann said "It all seems very murky. We need a full investigation into the matter"

"If you are paying no rent where you are staying, you can't possibly be claiming subsistence for staying there," he said.

Umunna supported Mann, calling an for an inquiry.

He told BBC1's Sunday Politics that a proper, independent investigation was "incredibly important, in order "to rebuild trust and demonstrate this is being dealt with in a proper way."

Lady Warsi insists that she made an "appropriate payment" for the nights she stayed at a property occupied by Tory official Naweed Khan, and had handed him the correct amount to be passed on to the landlord.

Mr Khan has supported her claim, releasing a statement saying that she paid each time she stayed at the property.

However a report in the The Sunday Times and The Sunday Telegraph contradicts those claims.

The owner of the property, Dr Wafik Moustafa, a GP in Acton, West London, has denied that he received any income from either Lady Warsi or Mr Khan.

"Baroness Warsi paid no rent, nor did she pay any utilities bills or council tax. It was an informal arrangement, so no tenancy contract was drawn up” he told the Telegraph.

Dr Wafik Moustafa, a Conservative donor and former electoral candidate is now engaged in a dispute with the party and Lady Warsi.

He told politics.co.uk that he was as shocked as any other reader when he read her statement last night, which said she had paid "the appropriate financial payment" to Khan whilst staying in his flat.

"Naweed [Khan] never paid any money and I never asked him for any money. She is trying to save her skin by any means" he told the website.

Baroness Warsi, a Tory peer and now a Cabinet Office minister, was claiming Lords subsistence of £165.50 a night, whilst she was staying at the flat.

Take a look at some of the reaction on Twitter and carry on reading the story below

Sir Alistair Graham, a former chairman of the Committee on Standards in Public Life, said: "At the moment it all looks very muddy and blurred and worthy of a full investigation."

Speaking to Sky News, he suggested that if the standards commissioner decided to investigate then Lady Warsi should relinquish her ministerial office until any inquiries were complete.

"I personally am always of the view when ministers face very serious allegations that seem to have some strength to them, then it's better that they stand down from their ministerial post while that investigation takes place, but of course that is a matter for the Prime Minister," he said.

The accommodation embarrassment for Lady Warsi, the most senior Muslim politician in Britain, is coupled with another expenses blunder, as she admitted she hadn't declared rental income on a London flat in the Lords register of interests.

She said the omission was due to an "oversight", adding that she had reported the letting of her Wembley flat in the Register of Ministers' Interests.

In a statement last night, Lady Warsi said that she contracted to buy the flat in September 2007, but it was not due to be ready until the following year.

In the interim she stayed predominantly at two hotels but also, for "occasional nights", at an Acton property occupied by Tory party adviser Mr Khan.

"The completion date for the property was slightly delayed, and not having made advanced bookings for these hotels, there was a period of around six weeks when I spent occasional nights at a flat in Acton, which was occupied by Naweed Khan, at the time a member of Conservative Campaign HQ staff," she said.

"For the nights that I stayed as a guest of Naweed Khan, I made an appropriate financial payment equivalent to what I was paying at the time in hotel costs.

"In March 2008, I moved into the flat in Wembley. As I was living in the property, it was therefore not registrable on the Register of Lords' Interests. Upon becoming a minister, however, my ownership of this property was fully disclosed to the Cabinet Office.

"In June 2010, upon security advice, I moved to another address closer to the House of Lords and some months later began, with the prior approval of the Cabinet Office and the Leader of the House of Lords, to let out the Wembley property.

"Due to an oversight, for which I take full responsibility, the flat was not included on the Register of Lords' Interests when its value and the rent received came to exceed the thresholds for disclosure," she said.

"When the discrepancy became apparent this week, I immediately informed the Registrar of Lords' Interests of its omission.

"I repeat, at all times my ownership of the flat and the fact that it was being let out was fully disclosed to Cabinet Office officials and HM Revenue and Customs, and was appropriately reported on the register of ministers' interests held by the government."

Peers are required to declare sources of income of more than £500, although the annual rent on a London flat is likely to be many times greater than that.

Mr Khan said that he stayed at the house belonging to Dr Moustafa between July 2007 and November 2008 while working in central London.

"In the early part of 2008, for a short period, Baroness Warsi stayed with me," he said in the statement.

"I confirm she made a financial payment on each occasion, which compensated for the inconvenience caused and additional costs incurred by me as a result of her being there."

Conservative deputy chairman Michael Fallon acknowledged the controversy was "embarrassing" but said Lady Warsi believed she acted within the "spirit and letter" of the rules.

"These sorts of thing are always embarrassing but the key thing here is that Lady Warsi has admitted she's made a mistake, she's apologised for it," he said.

"She's corrected the record now and she's very happy to cooperate with any investigation back into her claims and I think it should be left at that until any investigation is reported."

Speaking to Sky News, Mr Fallon said Lady Warsi had paid the other tenant but not the owner of the Acton property.

"She stayed overnight in the other property before her own house was available and she believes she was fully entitled to claim the overnight allowance from that and to pay the other tenant for some of the costs involved," he said.

"She believes that was within the spirit and the letter of the rules as they were then and she's very happy to cooperate with any investigation."