The beleaguered Chancellor: Rules 'justify the use of public cash by Lamont'

USE OF pounds 4,700 of taxpayers' money last year to settle libel-related expenses connected with the sex therapist who rented part of Norman Lamont's London home was fully justified under government rules, Downing Street insisted yesterday.

But the guidelines, Treasury Solicitor's rules on 'Defamation of Ministers and Civil Servants - May 1990', make clear that the libel or potential libel must relate to 'the conduct of a Minister in the performance of his official duties'.

The hitherto secret rules, revealed by Mr Lamont after prompting from Gordon Brown, Labour's economic spokesman, say that a minister can be indemnified out of public funds if 'libelled in his official capacity'. The test was whether it was 'in the department's interests that proceedings should be instituted'.

Labour and Liberal Democrat MPs repeated the charge that the payment was wholly unjustified. Alan Beith, the Liberal Democrat treasury spokesman, said the payment was an 'emolument' under the Taxes Act and Mr Lamont should pay pounds 1,600 tax on it.

Questioned over the apparent divergence between the strict wording of the rules and a case involving a private tenant, a Downing Street source appeared to add a gloss yesterday, saying that an issue would be considered in terms of whether it 'bears on' the performance of a minister's official duties, and whether it 'calls into question the character of the Chancellor'.

That definition could equally be applied to some of the recent newspaper coverage of Mr Lamont's misfortunes, but he has made it clear to the Treasury that he will personally meet legal bills that he will incur having instructed Peter Carter-Ruck to complain to newspapers about alleged inaccuracies.

The bundle of documents released to Mr Brown apparently confirms that it was Sir Peter Middleton, the then Treasury permanent secretary, who made the move to pay the Peter Carter-Ruck and Partners bill for issuing a warning statement and handling press inquiries after it was discovered that Sara Dale, Mr Lamont's former tenant, was a 'sex therapist'.

But a letter Sir Peter wrote to Mr Lamont on 1 May last year raised eyebrows yesterday. 'Treasury ought also to bear a share of the costs of the legal proceeding to secure the removal of an unsatisfactory tenant and all those associated with the application for an early hearing,' it said.

On any reading of the guidelines such expenditure, which in the event did not occur, could not have fallen within them.

An internal Treasury memorandum authorising the pounds 4,700 payment says that Sir Terence Burns (now permanent secretary) and Sir Peter Middleton before him agreed to it 'on the grounds that it was important quickly to put the record straight so as to retain full confidence in the office of Chancellor and its holder and that subsequent later articles were an attack on Mr Lamont's pursuit of his duties as Chancellor'.

The Government yesterday ordered an investigation by Eric Howe, the Data Protection Registrar, into how details of Mr Lamont's NatWest Access card account were revealed to the press.

The Labour Party yesterday demanded an emergency House of Commons debate on the Treasury pay-out. Mr Brown said: 'The rules make it absolutely clear that public funds could be justified only in the conduct of public duties that involve official responsibilities. The press handling of a private eviction is not one of these.'

The request was turned down by Betty Boothroyd, the Speaker.