The crisis at the Co-operative Group descended into a bitter political battle on Tuesday night as Labour and Conservatives hurled accusations at each other over their involvement with the stricken mutual.

The Co-op, which this month was forced into a dramatic restructuring of its banking business, this week lurched straight into another scandal, after the former chairman of its bank, Rev Paul Flowers, was filmed allegedly buying drugs.

The mutual’s problems escalated on Tuesday, after its group chairman, Len Wardle resigned with immediate effect, taking responsibility for appointing the disgraced Methodist minister. In another twist, Bradford council revealed that Rev Flowers quit as a councillor two years ago after “inappropriate but not illegal adult content” was found on his computer.

The scandal threw Labour, which has financial links with the Co-op, on to the defensive, while the Conservatives came under fire for championing the lender’s abortive attempt to purchase branches from Lloyds Banking Group.

The regulatory oversight of the mutual was also called into question. The Financial Services Authority, the former regulator that was disbanded this year, approved Rev Flowers’s appointment as a non-executive director of the Co-op Bank in 2009 and waved through his promotion to chairman a year later.

Lord McFall, Labour member of the cross-party banking commission, said on Tuesday he was “flabbergasted” that regulators had approved Rev Flowers’ elevation even though he had no banking experience.

Andrew Tyrie, the influential Tory chairman of the banking commission, said legislation progressing through Parliament needed to be tightened to ensure better oversight of rank-and-file banking staff, not just senior management.

The Tories attacked Labour for its links with the Co-operative party, pointing out that Ed Miliband met Rev Flowers in March and highlighting the large donations Labour has received from the Co-op.

Lord Myners, a former Labour City minister, turned the spotlight back on coalition ministers by asking why George Osborne and Vince Cable had appeared to give their blessing to the Co-op’s attempt to buy 630 branches from Lloyds Banking Group.

“Win Bischoff and Paul Flowers have both suggested the government was pushing hard to put these banks together,” the peer told the FT. “What that means is that if they had done it they would have put the customers of more than 600 branches of Lloyds into the hands of a weak institution.”

His comments came as a second Co-op Bank board member was facing calls to resign. Graeme Hardie was one of the FSA regulators who interviewed Rev Flowers before later being recruited by the bank as a non-executive director.

Brooks Newmark, a Conservative member of the Treasury select committee, which recently cross examined Rev Flowers, said: “This is another nail in the coffin of the Co-op and the FSA. They failed to do their proper due diligence on Rev Flowers. I think the Co-op and Mr Hardie have to think very carefully now about whether it is right that he should remain on the board.”

The Co-op declined to comment on the matter.

The regulator’s role was further questioned on Tuesday as the Treasury committee took evidence from David Anderson, who led the Co-op’s banking business before its disastrous merger with the Britannia building society.

Mr Anderson said the regulator was convinced the tie-up – which triggered large losses for the Co-op – would create a combined group that was safer than the standalone businesses. He also said that while the Britannia deal did not work out as he hoped it “was not enough to bring down the bank”.

Earlier, the Co-op appointed Ursula Lidbetter as a temporary group chairman to lead a review of its governance procedures.

Ms Lidbetter, deputy chair and chief executive of the Lincolnshire Co-operative Society, said: “These are very difficult times for the Co-operative Group and the wider movement, but I believe that we can and will come through this period stronger than ever by facing up to our challenges.”

Additional reporting by George Parker

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