By Andrew Osborn
LONDON (Reuters) - The head of a British government agency that hands out billions of pounds of loans to local authorities has resigned after failing to reveal he was bankrupt, Prime Minister David Cameron's office said on Sunday.
Cameron appointed Tony Caplin, a former senior official in his ruling Conservative party, to head the Public Works Loans Board (PWLB) last year. His resignation ahead of European elections next month and a national election in 2015 is embarrassing for the prime minister.
The PWLB is in charge of distributing infrastructure loans to local authorities across Britain and controls a loans portfolio of up to 60 billion pounds ($100.85 billion).
However, an investigation by the Mail on Sunday newspaper revealed that Britain's High Court had declared Caplin, the agency's head, bankrupt in 2012 with debts of more than 3 million pounds ($5.04 million), a fact he had not disclosed.
Government rules stipulate that officials declared bankrupt must come clean about it so it can be decided whether they can keep their jobs or not.
"He should have declared he was bankrupt," Cameron's office said of Caplin in a terse statement. "This has been pointed out to him and as a result he has resigned."
The opposition Labour party, which has a narrow lead over Cameron's Conservatives in the polls, said the matter called the prime minister's judgment into question.
"It is astonishing that the Prime Minister and the Chancellor (finance minister) could appoint someone who went bankrupt owing so much to the Treasury to run the Treasury's lending operations," Chris Leslie, one of Labour's financial spokesmen, said in a statement.
He said Caplin's appointment was "a misjudgment too far by a Prime Minister with a track record of poor judgment in relation to his cronies."
Earlier this month, Cameron suffered a more serious blow to his authority when a scandal-hit minister he had been doggedly defending resigned, exposing him to charges of weak leadership and poor judgment.
Cameron says his government has delivered an increasingly strong economic recovery after a deep recession, a factor he hopes will hand him re-election next year as people's living standards begin to rise again.
($1 = 0.5949 British Pounds)
(Editing by Rosalind Russell)