Blair raises stakes over shares row as peer rejects claims as absurd

Taxpayers' cash could be used to fund an unprecedented libel action against William Hague and other Tories if they smear Lord Simon of Highbury outside the Commons, the Prime Minister's office said last night.

The Tory allegation is that Lord Simon, former BP chairman who has become an unpaid minister, has a conflict of interest because he holds pounds 2m of BP shares while dealing with matters of interest to BP, like gas liberalisation, in government. That is denied.

Lord Simon says he has no intention of resigning. He said he will not be deflected from helping Britain to win in Europe. In spite of the criticism, Lord Simon says that three months after accepting the post of a minister in Tony Blair's government, "I am sure I made the right decision and astonished that resulting criticism has come not from the less new members of new Labour but from an apparent champion of the free market, John Redwood."

Answering three charges of a conflict of interest between his ministerial role in Europe and his BP shares, Lord Simon says in today's Times that he has other non-BP shares of an undisclosed value in a blind trust. He will review the BP shareholding in January, when it may be sold; he is not evading tax by having his holdings in a Jersey trust; and there has been no conflict of interests.

"If I am doing my job effectively, I will benefit BP as well as every other company in Britain. I make no apology for that. But attempts to claim that such generic decisions represent a conflict of interest border on the absurd." He also takes a sideswipe at the Tory opposition as being "once the party of business" and warns that their criticism will put off other businessmen from serving in government.

In savage Commons exchanges over Lord Simon on Wednesday, Mr Blair told Mr Hague that if he believed his Minister for Trade and Competitiveness in Europe had broken any rules, "perhaps he should go outside the House and repeat that allegation where it can be properly tested".

The hint that Lord Simon might bring a private action for libel escalated into a threat against the Tory leader last night, after the Cabinet Office published a new code of conduct for ministers.

The code, revised by Mr Blair's administration, specifically raises the possibility of ministers taking action for defamation, and a spokesman for the Prime Minister said last night that the threat could be applied to the Tory attacks on Lord Simon.

Mr Hague and Mr Redwood, risked putting themselves in the line of fire.

In a letter to Mr Hague on Wednesday, passed to The Independent, Mr Blair says: "Instead of hiding behind parliamentary privilege, you should be prepared to state your claims openly and face the full consequences of doing so. I therefore invite you to repeat the allegation you made inside the House and set out any evidence you have to support them." The new code repeats that ministers occasionally become engaged in legal proceedings, "primarily in their personal capacities but in circumstances which may have implications for them in their official positions. Defamation is an example of an area where proceedings will invariably raise issues for the minister's official as well as private position."

In all such cases, the code of conduct says, ministers should consult government law officers before consulting their own solicitors - and the law officers could take charge of proceedings from the outset. Under those circumstances, the taxpayer could be expected to underwrite the minister's costs.

Mr Redwood told The Independent: "As neither the Leader of the Opposition nor I have smeared Lord Simon, all we've done is to ask a series of questions about how the Government has arranged its affairs in these important matters, I do not really see the point of the question." Earlier in the Commons, however, Mr Redwood again pressed Margaret Beckett, President of the Board of Trade, over Lord Simon's alleged conflict of interest. She said she and her ministers had answered 58 "nit-picking questions" about the issue.

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