On the night of the UK election in 2005, Lord Ashcroft cut a lonely figure at Conservative Party headquarters. As the results came in, he sat alone in front of a television screen, scribbling down figures on a pad, most definitely not part of the party's high command.

Although the Tories were heading for an inevitable third defeat running, Ashcroft had something to smile about. His personally-funded operation in the marginal seats had paid dividends in about 25, giving the party a stronger platform for the following election. Party treasurer when his friend William Hague was Tory leader, he had been kept at a distance by his successors Iain Duncan Smith and Michael Howard. The Tories' performance in the marginals in 2005 only fuelled his desire to run an even bigger operation in them next time. This gave Howard's successor David Cameron a headache. The billionaire of Belize was not going to go away. Cam­eron decided to hug him close, bring his freelance operation under the party's wing and make him deputy chairman. "It was a classic case of having someone inside the tent, pissing out," one Tory insider recalled.

So Cameron hoped. In the past week, it has looked as though Ashcroft was having the opposite effect. The controversy over his tax status dominated the headlines after he admitted on Monday that he was still a non-domicile who did not have to pay tax on his foreign income 10 years after promising to take up "permanent residence" in Britain as a condition of becoming a peer. He later persuaded the authorities to accept that he would be a "long-term" resident, enab­ling him to remain a non-dom.

It has been another lost week for the Tories. Camer­on's impressive speech to the Tories' spring conference last Sunday steadied nerves. But not for long.

This was "education week" on the party's election grid. If you haven't noticed because of all the Ashcroft headlines, you are not alone. "I didn't know that," one Tory MP confided.

A frustrated Tory leader told journalists on Tuesday that they were "flogging a dead horse" over the Ashcroft saga. But this horse has legs, and it is still running. On the eve of an election, it is reinforcing the Tories' image as a party of and for the rich far better than Labour could ever do.

Although Cameron apparently didn't know about Ashcroft's tax status until the past month, the affair raises questions about his judgement – and that of the shadow foreign secretary. Hague lobbied hard to secure the Ashcroft peerage. Either Ashcroft did not tell him the whole picture about his "long-term" residency negotiations or Hague has been lying since. I don't believe Hague is a liar.

But looking back at his media interviews, it seems that Hague has misled people. On the BBC's Andrew Marr Show last November, he was asked whether Ashcroft now paid tax in Britain. Hague replied: "My conclusion, having asked him, is that he fulfilled the obligations that were im­posed on him at the time that he became a peer." He added: "I imagine that [paying taxes in the UK] was the obligation that was imposed on him."

The implication was that the deputy Tory chairman was paying the same taxes as most people – although when you read his words carefully Hague didn't actually say that. I took Hague's words at face value and wrote a story saying the Tories had finally confirmed Ashcroft was paying tax in Britain. Which he is; it is just not the whole picture.

I didn't receive a complaint from Tory HQ. Yet it contradicted Sir George Young, the shadow Commons Leader, when he told the BBC's Newsnight programme last month: "He [Ashcroft] is in the same position as a number of Labour peers who are non-domiciled and who fund the Labour Party." A Tory spokesman said then: "Sir George doesn't know Lord Ashcroft's tax status." Really? A damn good guess then.

The Tory leader is at his best when his back is to the wall. It is now. There are signs of his Praetorian Guard distancing him from Ashcroft and even Hague, who seems to have discovered the peer's non-dom status about two months ago. The lesson of this week is surely that a new system of MPs' expenses will not be enough to restore public trust in politics. Reform of the way parties are funded is a must too.

The Ashcroft affair is a salutary reminder of the dangers of the British political system, and the rich donors still at the heart of it.