Hague draws blood after Simon attack

Tony Blair last night threatened the Leader of the Opposition with legal action for defamation after William Hague had used Commons Question Time to cast doubt on the integrity of Lord Simon of Highbury and Canonbury.

In the most blistering parliamentary exchanges since the election, Mr Hague spoke of "a strong smell of hypocrisy", and the Prime Minister retorted that Mr Hague and his colleagues were running a "vile and scurrilous campaign" of smear and slur against the former chairman of BP who has become unpaid minister for trade and competitiveness in Europe.

Mr Blair repeatedly asked Mr Hague to identify any breach of the rules, Mr Hague maintained his onslaught, and the Prime Minister said: "You should go away and grow up and ask more sensible questions in future." Mr Hague took that as a sign of defeat.

The row opened with Mr Hague picking up the point made exclusively in yesterday's Independent - the revelation that a Treasury clampdown on tax avoidance is to include the Jersey-based scheme in which Lord Simon maintains a pounds 2m BP shareholding.

Mr Hague pressed the Prime Minister on that piece of "breathtaking hypocrisy", and then questioned the conflict of interest between Lord Simon's continuing shareholding and his work as a minister, which includes responsibility for the European Single Market, gas liberalisation and common energy taxation - issues that have a direct bearing on BP.

The Prime Minister suggested that if Lord Simon had got rid of his BP shares, as a former chairman of BP he could have fallen foul of rules on insider trading.

At the climax of the exchanges, Mr Blair challenged Mr Hague to repeat his charges outside the Chamber of the Commons - where, without the protection of parliamentary privilege, it was suggested, the Tory leader would be open to legal action for defamation.

Last night, Mr Hague replied to a repeat of that challenge, in a letter from the Prime Minister, saying: "We will continue to put the case inside and outside the House until the public get the answers they deserve to this serious conflict of interest at the heart of your Government."

Opening the Commons attack, Mr Hague said: "Given the statement of the Financial Secretary yesterday, that the Government would investigate tax avoidance schemes relating to offshore trusts, what advice have you got for Lord Simon who has pounds 1m invested in an offshore trust in Jersey in order to pay less tax?"

Mr Blair said: "I don't think there has been any more vile and scurrilous campaign than the one mounted [against Lord Simon]. This is a man who has given up earning hundreds of thousands of pounds a year to come in and serve the Government and to give public service."

Earlier, the attack on Lord Simon was joined by Robert Wareing, the Labour MP for Liverpool West Derby, who is to be punished for not declaring a company shareholding to the Registrar of Members' Interests.

Mr Wareing, who is to make a public apology to the House before being suspended for a week, told BBC Radio 4's Today programme: "I think that people like Lord Simon must now reconsider their position. Either they must divest themselves of their shares, or divest themselves of office in Her Majesty's Government."