Ministers' jobs on the line as Scott readies his report

The Prime Minister has been sent the first chapter of the Scott inquiry report on the arms-to-Iraq affair, which threatens to plunge the Government back into the scandal and could lead to ministerial resignations in the new year.

Lord Justice Scott has cancelled further Christmas leave for his key staff, and will return to his office tomorrow to work on the second chapter, which will cover breaches of the arms embargo on Iraq.

The first chapter sets out the rules governing trade with Iraq. Copies of the second chapter will be sent for comment next month to ministers and others whom it criticises before the final report is completed They are expected to include Alan Clark, the retired trade and industry minister, who agreed to shipments of machine tools which, it is alleged, were later used to make weapons.

The most high-ranking ministers at possible risk are William Waldegrave, a former foreign minister and still a member of the Cabinet as Minister of Agriculture, who faced criticism for agreeing to a change in the rules for exports, and Sir Nicholas Lyell, the Attorney General, who was criticised for his advice to Cabinet ministers on signing public-interest immunity certificates specifying that documents should remain secret.

Lord Justice Scott has told his staff he wants to have the report ready by Easter, but those close to the inquiry team say the final report may be delayed. "There have been two delays already, and there could be more," said an inquiry source.

Robin Cook, Labour's shadow Foreign Secretary, said: "The Scott inquiry report will be very damaging for the Government. Just when the Government was hoping to climb out of the mire, this report will push them back in.''

Mr Cook, who has seen a copy of the first chapter, said: "Iraqgate" showed a readiness on the part of ministers to arm Saddam Hussein; a panic cover-up when he invaded Kuwait in 1990; and ministers' willingness to let innocent men go to jail rather than admit what they had done.

As the former shadow Trade and Industry Secretary, Mr Cook attended most of the key inquiry hearings, which included evidence from Baroness Thatcher and John Major. Mr Cook alleged Mr Major had misled MPs, a charge Mr Major strongly denied.

There were fiery exchanges during the hearings, including a row between Lord Justice Scott and Lord Howe, the former Foreign Secretary, who accused the judge of acting as "detective, inquisitor, advocate and judge''. Mr Waldegrave admitted he gave false impressions under questioning.

The Scott inquiry was ordered by Mr Major after the collapse of the Matrix Churchill trial, which centred on the supply of the "Supergun" to Iraq.

The case against the company's directors broke down when Judge Brian Smedley overturned the public-interest indemnity certificates signed by Michael Heseltine, then Secretary of State for Trade and Industry, Kenneth Clarke, then Home Secretary, Malcolm Rifkind, the Secretary of State for Defence, and the former foreign minister, Tristan Garel-Jones.