Cherie, the conman and the luxury flats that came at a high price

As Downing Street was convulsed yesterday by the storm over whether it lied over Cherie Blair's links with the convicted fraudster Peter Foster, one Number 10 aide warned darkly: "The rest of the media is going to crucify us now. It will take its revenge."

In trying to shrug off allegations which broke last weekend, Blair aides had played on the fact that the claims had surfaced in The Mail on Sunday, part of the newspaper group most hostile to the Government. Tony Blair, who had courted the Daily Mail and its sister paper since he was a rising Labour star in the late 1980s, became disenchanted last year with its relentless diet of anti-Labour stories. He privately dubbed it: "The Daily Demoraliser."

Yesterday, it was Downing Street which was demoralised over its latest crisis with the media. Number 10 had issued a misleading statement saying that Mr Foster had not acted as a financial consultant to the Blairs, calling into question the credibility of Mr Blair's spokesmen on other issues. To make matters worse, Downing Street had alienated the rest of the media by trying to put it off the scent by suggesting the story was part of the The Mail on Sunday's anti-Government campaign.

The Blair aide said yesterday: "We told other journalists, in effect, that it was only the Mail up to its usual tricks. With hindsight, that was stupid."

One explanation of why the media was misled was offered by a political ally of Mr Blair: "Cherie hates [The Mail on Sunday] as much as [it] hates her. Her instinctive reaction was to batten down the hatches." Mrs Blair must have wished she had never allowed herself to get involved with Mr Foster. The Blairs had decided to buy two flats in Bristol, where their eldest son Euan started at university this autumn. Busy in her job as a QC, Mrs Blair asked her friend Carole Caplin to check out two flats in a complex in the Clifton area for her.

This is where the problem began. Ms Caplin went to Bristol with her boyfriend, Mr Foster. Although Mrs Blair had never met him, she accepted his offer to help in the negotiations over the purchase of the flats with the property agents. The sale was completed last Friday. But it was not the end of the matter, only the beginning, as details broke of Mr Foster's self-confessed role in securing the flats for the Blairs at a supposedly deep discount to their market price. That might not have been a problem, were it not for the fact that Mr Foster had been jailed on three continents for fraud.

Tony Blair was in Newcastle last Saturday, fielding questions from Labour members at a meeting of the party's national policy forum, when The Mail on Sunday rang Downing Street at noon with 22 detailed questions about its scoop. Cherie Blair was already at Chequers, where the Prime Minister was to join her later. It fell to Godric Smith, his official spokesman, to compose a reply to the paper's allegations.

In the limited time available, and with the Blairs hundreds of miles apart, Mr Smith felt he could not give a point-by-point response to the accusations and so decided to issue a limited statement seeking to distance the Blairs from Mr Foster who, the newspaper claimed, had been "admitted to the Blairs' inner circle".

The Downing Street statement said: "The Prime Minister has never met Mr Foster. Mr Foster has never been to Downing Street or Chequers. It is not true that Mr Foster was or is financial adviser to the family."

The Mail on Sunday story had limited follow-up in Monday's newspapers, after Number 10 sources went further than the statement in off-the-record briefings with journalists, saying Mr Foster "never represented or negotiated on behalf [of the Blairs] in any financial transactions" – comments which Mrs Blair now admits to be inaccurate.

Downing Street officials were braced for hostile questions over the affair at Monday's meeting of the Lobby journalists based at Westminister. In the event, it surfaced only briefly at the end of a press conference devoted to how the armed forces had coped during the eight-day firefighters' strike.

Number 10 officials thought the worst was over, but they were wrong. The Independent raised the issue at the Tuesday morning Lobby meeting, asking whether the Prime Minister believed that the Criminal Records Bureau should be used to check out the people hired by Mrs Blair. Tom Kelly, the joint official spokesman with Mr Smith, replied: "I wouldn't accept the use of the word 'hired' in your question. We have said all we are going to say about the issue." The questions kept coming. Crucially, when asked whether Mr Foster played any role in purchasing any flat for Mrs Blair, Mr Kelly replied: "If any negotiations had taken place, they were carried out by Mrs Blair and her lawyer."

This statement was blown out of the water by the Daily Mail yesterday, which devoted its first nine pages to explosive revelations that Mr Foster had indeed negotiated on Mrs Blair's behalf. It included a series of e-mails between Mr Foster and Mrs Blair, who called him "a star" after he saved a total of £69,000 on the price of the two flats.

Although there was still no evidence that the Blairs had acted improperly over the purchase, Downing Street officials knew that the key issue would become the misleading statements they had issued.

The Government has made real efforts to stop the damage caused by "spinning" to the media, notably by moving Alastair Campbell to a backroom role and having the twice-daily briefings fronted by Mr Smith and Mr Kelly instead. As civil servants rather than party political appointments like Mr Campbell, they have been at pains to retain their credibility with journalists by avoiding any misleading statements. Now, suddenly, that credibility was on the line – and the Prime Minister's wife was to blame.

Rumours swept Westminster yesterday that Mr Smith was considering whether to resign. Whatever the truth, a decision was taken that to protect his reputation, Mrs Blair would issue an unprecedented statement apologising if the media had been misled during the earlier briefings.

With Mr Smith ensconced in Downing Street, Mrs Blair's detailed statement was read out by Mr Kelly at yesterday morning's Lobby briefing, admitting that Mr Foster was involved in the negotiations over the purchase of the flats.

A can of worms had now been opened. Inevitably, journalists wanted to know more. Did Mrs Blair give Mr Smith and Mr Kelly the whole picture before they made their misleading statements, or were they culpable? What was the involvement of Mr Campbell, whose partner Fiona Millar is Mrs Blair's media adviser and who still pulls the strings in Downing Street's media operation as director of communications and strategy?

If the first statement issued by Mrs Blair was intended to heal the wounds inflicted on Mr Smith and Mr Kelly, at lunchtime yesterday she judged that she needed to go further. The media was speculating about "who knew what and when". Mr Campbell's name, inevitably, was in the frame. In an attempt to limit the damage to the Government's credibility, Mrs Blair released a second statement at yesterday afternoon's Lobby briefing, accepting full responsibility herself for the misleading statements made by Number 10 earlier in the week.

By a strange quirk of fate, Mr Blair was in Bristol last night as part of a long-arranged tour of the South-west and was expected to visit Euan. "It is nice to know there is irony in life," quipped one Blair aide in rare moment of light relief on a black day.

The e-mail exchanges

Edited extracts from the exchanges between Cherie Blair and Peter Foster

From: Peter Foster.

To: Cherie Booth.

Sent: 28 October 2002, 10.53am

Subject: Fw: The Panoramic

The larger of the two apartments we looked at is XX. Its neighbour, XX, is an identical size. This is the one that you first asked Carole to view. The developer had the property listed at £297,000. They came back and offered it as £294,995. Eventually when I argued it had originally been offered to you at £279,000 and was advertised on their web site at that price, they relented. After explaining the benefits of having reliable tenants yada yada yada, and much lively debate, they agreed to honour the original offer [and came down to] £272,000 ... On Saturday I advised we will walk away as our best offer was £265,000 and we weren't looking to buy the property, but steal it. Cut a long story short, we have a deal at £265,000. I believe that £294,995 was the genuine advertised asking price and that £279,000 was their genuine bottom line. I think that £265,000 (£30,000 below advertised price) you can't lose money no matter if the marked does level out for a period. It's a nice building in a good position and is virtually sold out.

As for the stamp duty issue, the tax man recently sent out a circular to all accountants advising that they are keeping an eye out on all property sales just under the £250k mark for that very purpose, so to try and do something could be risky and unadvisable. My accountant is able to obtain a mortgage for you through Lloyds Bank or a private lender ... I am happy to take the burden off you and make this happen with the minimum of fuss. Let me know if I can be of service ... as I tell Carole, your pleasure is my purpose. (she hates that saying, hence the need to say it often enough and loud enough) Best to you, Peter F

From: Cherie Booth.

To: Peter Foster.

Sent: 9 November 2002, 11.27am

Subject: RE: The Panoramic

I cannot thank you enough Peter for taking these negotiations over for me. I really appreciate it. I was very glad to meet you face to face at last and hope we can see each other again soon. Cherie

From: Peter Foster.

To: Cherie Booth.

Sent: 14 November 2002, 6.51am

Subject: Re: The Panoramic tenancy

Thanks. I'll do the best I can. I just need to know we were on the same wave length. I'll keep you posted. Best, Peter F

From: Cherie Booth.

To: Peter Foster.

Sent: 14 November 2002, 8.38am

Subject: RE: The Panoramic tenancy

We certainly are on the same wave length and to get the place tenanted would be a real weight off my mind. Cherie

Cherie Blair the case for the defence

This is an edited text of Cherie Blair's statement.

"In the summer, as our eldest son was going to Bristol University I decided to purchase a property there.

"Through a family friend, I was told of a particular complex of flats. In early October I entered into detailed correspondence on this with a friend, and through her, with the property agents.

"On the basis of those discussions I decided it was a suitable potential purchase.

"It was during these discussions that the asking price for the property was reduced from £295,000 to £269,000. For reasons of avoiding publicity and because of work commitments I asked a friend, Carole Caplin, to look at the property for me.

"She visited the property in late October with her boyfriend Peter Foster. I had, at that point, never met Mr Foster or spoken to him and was unaware of the details of his past which have since become public.

"This transaction was properly carried out. Clearly had I been aware, I would have been far more circumspect in my response to what appeared to be straight forward friendly offers of assistance from the boyfriend of a friend and it is correct that for a couple of weeks of the negotiations in late October and early November he helped me by talking to the property agents, making suggestions to me about the best price to secure and corresponding with me by e-mail.

"He was not my financial adviser. My financial adviser was and is Martin Kaye of BDO Stoy Hayward. Mr Foster neither asked for nor received remuneration. As far as I was concerned he was the boyfriend of a friend who was helping me out.

"I visited the flat on 29 October. The deal was concluded by my adviser and my lawyer and the sale completed last Friday. I do not intend to publish the thick file of correspondence on this sale. I see no reason why I should.

"But it shows that the vast bulk of it does not involve Mr Foster at all. I have only met him once by chance when we had a brief conversation. When all the allegations were first put I made clear that he was not my adviser. That was, and is, accurate.

"If in not wanting to put into the public domain any and every detail of what I believe to be private issues I have caused any misunderstanding between the Number 10 press office and the media that is unfortunate and I regret that.

"But this transaction was properly carried out. The allegations we were asked to respond to were false and I believe that in our private dealings we should not be expected to put every detail into the public domain.

"Mr Foster has never met or spoken to my husband nor is it true, as has been claimed, that he met my son.

"I hope that any reasonable person, on reading this, will accept that I have done nothing improper, that this transaction was properly carried out and that I am only having to put all this into the public domain because of a series of false allegations which suggest otherwise."