Blair accused over Andersen links

PRIME MINISTER Toney Blair faced a deepening sleaze row as he was accused of 'deliberately misleading' the public over New Labour's links with a controversial accountancy firm.

A day after fending off questions over his Government's dealings with US energy giant Enron - the world's biggest corporate bankrupt - the spotlight swung on to his party's relationship with the crashed firm's auditors, Arthur Andersen.

Labour's links with Andersen - which is mired in accusations in the US that it shredded crucial documents when Enron went bust last month - could prove hugely damaging.

Andersen fell foul of the Prime Minister Margaret Thatcher 20 years ago when she banned the accountants from Government work for failing to blow the whistle on the fraud that brought down the De Lorean sports car company in Belfast.

After years in the wilderness, Andersen began ingratiating itself with New Labour's Treasury team in Opposition helping to shape two of Chancellor Gordon Brown's major tax changes.

When New Labour won power in May 1997 the legal battle led by the Tories to get Andersen to pay £200m damages for the De Lorean fiasco was settled within weeks - for £21m. The ban on the firm receiving Government work was also lifted. Several of Andersen's staff are now working in the Treasury. The firm has also won an estimated £30m in Government contracts since 1997.

On Tuesday, as Downing Street fought to dismiss any links between Andersen winning Whitehall contracts and the company's intimacy with New Labour, No 10 was forced to concede that Blair had intervened on an issue crucial to Enron's business in Britain. For the first time, Downing Street admitted the Prime Minister had 'taken an interest' in the lifting of Labour's embargo on the building of gas-fired power stations - a decision over which Enron lobbied at least four Labour ministers.

Enron has said it gave Labour £36,000 in sponsorship to get access to ministers. But it was the Labour-Andersen affair which provoked Downing Street into taking an extraordinary step.

A spokesman, breaking the convention that advice to former ministers is never disclosed to an incoming Government, quoted opinions given to the last Tory administration by Treasury lawyers seeking a settlement of the 12-year battle with the accountants over De Lorean.

The spokesman went out of his way to suggest that the Tories were on the brink of settling the battle and had only been thwarted at the last minute by the 1997 General Election. He declared that incoming Labour ministers, acting on 'the same report with the same recommendations', effectively rubber- stamped the settlement. This ended with Andersen paying only £ 21m compensation.

A Tory spokesman angrily accused the Prime Minister of issuing ' deliberately misleading' information. After consultation with the former Tory Attorney General Sir Nicholas Lyell, who dealt with the whole issue, he insisted: 'The De Lorean case was nowhere near as close to settlement as has been suggested, and certainly not on the terms agreed to by the Labour Government.'

Tory party vice- chairman Tim Collins told BBC Radio 4's PM programme: 'For 12 years the Conservative Governments of Margaret Thatcher and John Major had been battling through the courts to secure as much as possible back for the taxpayer of the money lost in the De Lorean affair. It was the Labour Party that decided to settle for only 10% of the money the taxpayer was, in our view, owed.'

The Tories also stepped up their attack, calling on the chairman of the Committee on Standards in Public Life, Sir Nigel Wicks, to conduct an inquiry into Labour's links with sponsors such as Enron. In particular, they want him to look into Blair's role in lifting a ban on the building of gas-fired power stations.

Downing Street's admission that the Prime Minister had intervened in the issue came when his spokesman said. 'In a policy as significant as the liberalisation of the energy market, obviously senior members of the Government take an interest.'

Former Labour Defence Minister Peter Kilfoyle said Labour should return the £36,000 to Enron to avoid the appearance of impropriety. 'These companies don't pay out large amounts of money to political parties for nothing. They expect to get something in return,' he told BBC Radio 4's Today programme.

On Tuesday night, however, the focus of the controversy was firmly on why the ban on the use of Andersen for Whitehall work was lifted. Labour was very dependent on Andersen in Opposition. It helped construct the Chancellor's £5bn 'grab' of pension cash and the windfall tax on privatised utilities. For three years in the mid-1990s Patricia Hewitt, now Trade Secretary, worked as head of research at Andersen's consultancy wing.

Blair's spokesman sought to defuse the issue of Andersen's profitable rehabilitation following the settlement of the De Lorean case. He claimed the same legal and civil service advice given to Tory ministers in early 1997, before the General Election, had been passed to Labour ministers when they came into office. This advice had been to lift the ban to avoid Andersen opening a second legal front on the issue.

He said the Treasury Solicitor - the Government's official lawyer - recommended the De Lorean dispute be settled by a mediation process. This led to the £21m settlement.

Meanwhile, Lord Wakeham, a former Tory minister, has been summoned to answer questions from a US Congressional inquiry over his involvement with Enron. Wakeham, Energy Secretary during the Thatcher premiership, was reportedly paid £80,000 last year as a non-executive director and member of the company's audit committee.

The Liberal Democrats have called for him to stand down as chairman of the Press Complaints Commission - the newspaper industry watchdog - until the investigation is complete.

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