Why Cuddles and Tiny hate the Tories: Cash-for-questions has shaken the Government; one minister has gone and another is fighting to keep his job. Yet this latest threat to John Major comes from an unlikely source

AT LUNCHTIME last Thursday, just as the cash-for-questions scandal was spinning out of control at Westminster, two businessmen met in a private dining room on the fifth floor of Harrods. It was, by all accounts, a very jolly lunch, for Roland 'Tiny' Rowland and Mohamed Al Fayed are the best of friends. In the words of one close to them: 'Tiny loves Mohamed. He refers to him as 'Cuddles' or 'Moo-Moo', and the affection is reciprocated.'

The occasion was especially happy because the two men had something to celebrate. Cash-for-questions was Mr Fayed's work, and it was causing embarrassment to their common enemy, the Conservative government. One minister, Tim Smith, resigned; another, Neil Hamilton, was resorting to writs in a struggle to keep his job; the Prime Minister was in deep trouble again.

Better still, there was the hint of more to come. Rumour was rife at Westminster, and newspapers were suggesting that a more senior figure, perhaps a Cabinet minister, would be the next person accused. The Government might even fall. Mr Rowland and Mr Fayed were enjoying every minute.

Revenge, they say, is a dish best eaten cold. In a Harrods dining room it tastes especially sweet.

THE story of how these two men came to detest the Conservatives, the Government and most of the British establishment is a story of business ruthlessness and hatred that has rarely been seen in this country. Rivals for a decade, they inflicted upon each other every humiliation they could contrive. Then, exhausted, they fell into each other's arms and decided that all along the real architects of their troubles had been the Conservatives.

Briefly, the story of the battle for control of Harrods is this: Mr Rowland first stalked House of Fraser, the shops group, in the 1970s, but in 1981 the Monopolies and Mergers Commission (MMC) ruled that a bid by his company, Lonrho, was not in the public interest. Mr Rowland did not give up, but when in 1984 another MMC investigation was ordered, he sold his stake to Mr Fayed and his brothers, Ali and Salah.

Some say this was an elaborate Lonrho feint but if it was it did not work, for the Fayeds promptly bid for the whole House of Fraser group. Outraged, Mr Rowland demanded that this be referred to the MMC, but the then Trade Secretary, Norman Tebbit, allowed it to go through unchallenged. Mr Rowland then waged a public campaign against the Fayeds, alleging they had lied about their Egyptian background and that the money they had used to finance their acquisition really came from the Sultan of Brunei.

Mr Rowland spent millions bombarding MPs and financial journalists with pamphlets and books poring over every detail of the Fayed finances, history and background. The Fayeds, in turn, sued whenever they could, queried Lonrho accounts and packed Lonrho annual meetings with hecklers.

Mr Rowland's campaign bore fruit when, in 1987, the DTI appointed inspectors to investigate the House of Fraser takeover. The result was an astonishing document. It began: 'The Fayeds dishonestly misrepresented their origins, their wealth, their business interests and their resources to the Secretary of State, the Office of Fair Trading, the House of Fraser board and shareholders, and their own advisers.'

It said they had produced false evidence and documents to explain how, at the time of the Harrods takeover, they came to have at their disposal bank deposits in excess of dollars 600m. 'We are of the view that these sums, or at any rate a large part of them, were not beneficially owned by the Fayeds . . . It is likely that the Fayeds used their association with the Sultan of Brunei and the opportunities afforded to them by the possession of wide powers of attorney from the Sultan of Brunei to enable them to acquire those funds.'

This report was published in 1990 but no criminal proceedings followed and the Harrods takeover was allowed to stand. This was not good enough for Mohamed Fayed, who took his case to the European Court of Human Rights, where he argued that he had in effect been condemned without trial. It was a month ago, on 21 September, that the court finally rejected that claim.

By then, however, something strange had occurred. Last October, Mr Rowland and Mr Fayed appeared together before the press at Harrods to announce that their dispute was over. Whatever the reason, 'Tiny' and 'Cuddles' have taken peace to their hearts.

Except, that is, where the Government is concerned. Mr Rowland dislikes British officialdom and has always questioned the motives of the ministers who he believes frustrated him over Harrods. Mr Fayed is a recent convert.

For him the watershed was the publication of that damning DTI report in 1990 (an event anticipated by Mr Rowland, who had brought out a leaked version in the Observer, which he owned). Last week, in press interviews, Mr Fayed listed all the things he had done for Britain: helping out in a currency crisis in 1985 (when he says he persuaded the Sultan of Brunei to keep huge cash assets in Britain); rescuing a big arms deal a little later; investing pounds 700m and providing work for 20,000 people; paying millions in taxes, and donating pounds 250,000 to the Conservative Party.

And all the thanks he got, he said, was to have his name dragged through the mud and his integrity impugned. 'They - the politicians and the City enemies and the DTI inspectors - could not accept that an Egyptian could own Harrods,' he said.

To add injury to insult, applications for British citizenship by Mohamed and Ali, his brother, have been held up at the Home Office, presumably because of concern about the DTI report.

Little wonder, then, that Mr Fayed was beginning to share his friend Tiny's view of the Government. He determined to strike back at his 'enemies'. What weapons did he have? One was the courts - hence the appeal to the European Court of Human Rights. But when that failed the legal avenues were closed.

As his spokesman admitted: 'Short of an appeal to the intergalactic court, we don't really know what to do.'

He found another way, and it came to him as a direct result of his peace with Mr Rowland. Their extraordinary dispute had stretched far and wide into British life, involving the press, the courts and politics. Influence was seen to be vital, and the two men left few stones unturned in the search for allies. Now that they were friends, they no longer needed to rely on these sources of influence.

ON THE day after the European judgment, Mr Fayed summoned Ian Greer to his office. Mr Greer is a parliamentary lobbyist whose clients include British Airways, Asda, British Gas, Coca-Cola, Cadbury Schweppes and Philip Morris.

He has also been a friend of the Prime Minister for more than 25 years.

During John Major's campaign for the Tory leadership he attended strategy meetings with Norman Lamont, the campaign manager, and his chauffeur-driven Jaguar came in useful. After the Tory election victory in 1992 Mr Greer paid about pounds 5,000 to publish a collection of Mr Major's 'soapbox' speeches.

That same year, the Prime Minister attended Ian Greer Associates' 10th anniversary party at the National Portrait Gallery. (The event made the diary columns because only champagne was served, and when Mr Major asked for gin and tonic Mr Greer had to send out to a pub.) When they met on 22 September, Mr Fayed is said to have asked Mr Greer to convey a message to Mr Major. Mr Greer refused, but the message got to No 10 anyway. One suggestion is that the intermediary was Brian Hitchen, editor of the Sunday Express, and a friend of the Harrods boss.

Here matters become opaque. We do not know the full content of the message.

But at its heart was the cash-for- questions allegation as it appeared in the press last week - that Tim Smith and Neil Hamilton were paid thousands of pounds by Mr Fayed through Greer Associates to raise parliamentary questions on behalf of Harrods at the height of the battle with Lonrho.

We also know that Mr Major referred the matter to Sir Robin Butler, the Cabinet Secretary, for investigation. But Downing Street declined to say whether the allegations concerned more than the two MPs named above, although the rumour at Westminster is that one more minister is implicated.

When Mr Major spoke of the affair in Parliament last week, he said: 'I made it absolutely clear at that time that I was not prepared to come to any arrangement with Mr Fayed'. Downing Street has also refused to elaborate on this. What arrangement? Did Mr Fayed offer a deal? If so, what? We do not know.

Sir Robin's inquiry took three weeks, partly, it is said, because of the interruption of the Tory party conference. It was too much for Mr Fayed, and he went public. How he did this is a curious tale.

For more than a year the proprietor of Harrods had maintained an improbable link with Peter Preston, editor of the Guardian. It began in the summer of 1993 when the paper published an allegation that, just before the last election, the Conservative Party had received a donation of millions of pounds from Saudi Arabia. The Conservatives had denied the story and the Guardian was having difficulty 'standing it up'.

Mr Preston wrote last week that an intermediary told him Mr Fayed was ready to help. They met in the Harrods building - the first of some five to eight encounters. In the event, Mr Fayed's assistance was insufficient to save the Guardian from having to retract the Saudi money charge and publish an apology, but he was able to put them on to another story.

This was cash-for-questions. Unfortunately for the Guardian, Mr Fayed was not at that time prepared to go 'on the record' with his allegations, but the paper ploughed ahead and a year ago produced a story about Greer Associates based on the evidence for which it could find corroboration.

It did not go unnoticed. Producers at Central Television's Cook Report decided to investigate Mr Greer, and set up a 'sting' in usual Roger Cook style. Researchers posing as Russians claimed they wanted to transfer dollars 40m from the former Soviet Union to buy the British Insolvency Service from the Government.

Hidden cameras filmed Mr Greer and Jeremy Sweeney, his managing director, as the deal was set up. They boasted of their connections with Mr Major, Michael Portillo and other senior Tories, and Mr Greer declared: 'We would never go out and say we can arrange to have a question tabled (in Parliament), but actually we can.'

Last May it emerged that the programme had been shelved. Peter Rushton, speaking for Central Television last Friday, said: 'From the material produced up to then it was decided it wasn't a Cook Report. There are 101 criteria and I couldn't tell you what they are.' An insider involved with making the programme claimed there had been a leak within Central Television: 'We found out later that someone from Central phoned Greer and told him he was being investigated.'

Whatever the reason, the effect was the same: Mr Fayed's attempts to get the cash-for- questions story before the public, without coming forward himself as the source, had failed. Last month his efforts to clear his name in the European courts also failed. And early last week, he lost patience with John Major over the delay in concluding the Butler investigation into the allegations.

According to one source, at this point Mr Fayed expressed his determination to make the Government 'drink shit'. To this end, he made contact again with the editor of the Guardian, and informed him that he was prepared to be quoted by name in the newspaper in support of the charges against Tim Smith and Neil Hamilton.

Last Thursday the story appeared. Within hours Mr Smith had resigned, admitting that he had accepted fees from Mr Fayed and had raised concerns about Lonrho in parliamentary questions, but he had failed to record this arrangement in the Register of Members' Interests.

Mr Hamilton's case is more complicated, which is why he remains in office. A flamboyant right-winger, he is known for his expensive tastes; when lunched by journalists, for example, he will expect champagne. He also has large financial commitments, including a Cheshire home, worth perhaps pounds 500,000, bought at the height of the property boom.

Mr Hamilton has denied taking money for asking parliamentary questions and has issued a writ against the Guardian (as has Mr Greer, who also denies the allegations against him). But Mr Hamilton does not deny that he enjoyed a luxurious stay in Mr Fayed's Paris Ritz Hotel, worth about pounds 3,330, and not declared in the Register of Members' Interests. This could now face a full investigation.

Tory backbench opinion is much less supportive of Neil Hamilton than his bullish public remarks would suggest. One northern Tory MP argued: 'I would be very surprised if majority opinion was not that he ought to have resigned. That would not be any reflection of his guilt or innocence. He could easily fight these charges from the back benches, particularly if he said that he was resigning in order to ease the pressure on the Government, and to clear his name.'

If, after a weekend listening to Conservative activists in the constituencies, the backbench 1922 Committee decides to recommend to John Major that keeping Mr Hamilton is politically more dangerous than sacking him, it will be difficult for the Prime Minister to sustain him in office.

Will the scandal spread? The Independent reported that two MPs not already named in the controversy had worked for Greer Associates without registering it as an interest. But the real interest focuses on the possibility that a Cabinet minister may be implicated. Who this might be is not clear.

In the Guardian Mr Fayed mentioned Michael Howard, who was Parliamentary Under Secretary at the DTI in 1987 when the inquiry into the Harrods takeover was set up. His second cousin, Harry Landy, was deputy chairman of a Lonrho company. Mr Fayed suggested this might have been a conflict of interest, although the DTI insisted it was not Mr Howard who ordered the investigation.

Today, as Home Secretary, Mr Howard has ultimate responsibility for the decision on whether to grant Mr Fayed and his brother the British passports they seek. Until recently the junior minister for immigration was Charles Wardle who, as a backbencher, attacked the Fayeds in the Commons in 1990.

The Harrods dispute was a vicious affair and we have certainly not heard the last of its echoes. Anyone doubting the lengths to which the principals were prepared to go, or the strength of their friendship now, could do worse than examine the case of Graham Jones.

Mr Jones was a senior executive under Mr Fayed who was dismissed in 1990. In January of this year, three months after the ending of the Harrods dispute, the Fayeds issued a writ against Mr Jones alleging, among other things, that he had supplied confidential information to Lonrho and that Lonrho had paid him pounds 555,000. The documents to support this case are understood to have been given to Mr Fayed by Lonrho. Tiny Rowland, if that is true, appears to have paid an informant pounds 550,000 and then delivered him on a plate to Mr Fayed.

Leading article, page 20 (Photographs omitted)