Leader: Ethically, Labour must be on the side of the angels

If David Simon were to grow wings and float up to the 18th floor of Canary Wharf, appearing outside our windows with a halo, we should not be surprised. He is a man of utter probity and propriety (Tony Blair), a man of the highest integrity (Margaret Beckett), a prominent, successful businessman coming into government to work, unpaid, in the public service (Peter Mandelson). For all we know, the announcement of his beatification is imminent, from the Vatican or the British Institute of Management, whichever is the higher authority.

Mockery apart, the Prime Minister is to be congratulated on his boldness in bringing talent, wherever it may be found, into his administration. Sadly, the pool of executive ability in the House of Commons does not, to put it gently, fully reflect the number of MPs. Lord Simon is not only decent and honest; he is also an impressively able man, whose commitment to the concept of the single European market, from the point of view of someone who has run a successful international business, is a valuable asset to the Government. On balance, taking into account the moderate caveat that no one has voted for him, his appointment as a minister was to be welcomed.

But ... there are some serious buts. What a mess Mr Blair has made of this appointment. The botched handling of Lord Simon's translation to ministerial office is not a trivial matter. Nor is it "synthetic twaddle motivated by spite from the Opposition", as Mr Mandelson charged yesterday, although John Redwood has certainly used the issue to show off the oppositional skills he honed during his internal exile. Mr Blair knows how important it is, which is why Mr Mandelson, Minister for Explaining the Higher Mysteries of New Labour, was put up on the Today programme.

Immediately after the election, Sir David became minister for competitiveness and the single market at the Department of Trade and Industry, resigned as pounds 874,000-a-year chairman of BP and took the title Baron Simon of Highbury and Canonbury (the posh bits of Islington, for those benighted folk who live outside Blair-land). But no one seems to have thought about his pounds 2m shareholding in BP.

Mr Blair, his advisers and officials had many pressing matters to attend to at the time. But it should have been obvious, to a party that had spent much of the previous 18 years attacking the "gravy train" of politicians leaving high office for lucrative boardrooms, that there were dangers inherent in traffic in the opposite direction, from business to government. Lord Simon's own character is irrelevant: the appearance of a potential conflict of interest should have been avoided. As a minister, Lord Simon is responsible for a range of policies that could affect - mostly indirectly - the profitability of his former company. Questions of Procedure for Ministers required ministers to dispose of investments "if it seems likely that any of them might give rise to an actual or apparent conflict of interest".

However, Lord Simon did not dispose of his BP shares. All he did was say that he would put his non-BP shares in a "blind trust" (which he did not get round to doing until after Margaret Beckett told the House of Commons it had already been done). Having overlooked the potential problem and been found out, the new government responded just like the old one, with an unattractive combination of defensiveness, self-righteousness and injured innocence. This week's defence of its inaction is most unconvincing. Lord Simon could not have "disposed" of his BP shares because he might have been accused of profiting from inside knowledge about how the company's profits were about to plummet, according to the synchronised spinning of Blair, Mandelson and Beckett. Besides, said Mr Mandelson, what about Michael Heseltine and Paul Channon? Well, they are beside the point, because Labour ministers are supposed to be better than them.

Why could Lord Simon not have put all his shares into a blind trust? An independent trustee could have been empowered to dispose of them whenever he or she, without inside knowledge of the company, thought best. This point should not be swept aside so dismissively by Mr Blair and his ministers.

What is least attractive about the Government's behaviour, however, is that the Prime Minister has responded to the Opposition's "vile and scurrilous" campaign by rewriting the rules for ministerial conduct. The new code, published yesterday to replace Questions of Procedure, waters down the absolute requirement to dispose of shares in cases of doubt. In what will become known as the Simon Clause, ministers may now, after submitting their case to the Prime Minister, "take alternative steps" to prevent an actual or perceived conflict of interest. Mr Mandelson (a veritable Lewis Carroll, he) described the new rules as "tighter" than the old ones, and claimed they were "going to make life harder for ministers".

As the Prime Minister has acknowledged by publishing the new code, the issue is much larger than one honest man's complex financial arrangements (and we have not even mentioned the Jersey tax-avoidance scheme). It raises questions about the scope of the rules. Most of the business leaders who have been brought into government have not been made ministers: they head "task forces", the latest management jargon. Their roles are advisory rather than executive, but, again, the avoidance of the appearance of a conflict of interest must be the absolute rule.

The pledge to clean up ethical standards in public life was central to Labour's promise on coming into office. Mr Blair rightly hammered away at the issue of sleaze. It was one of the anvils on which John Major's government was broken, and it is vitally important now that Labour should be holier than they.