Sleaze-finder General: Law lord ordered to clean up every aspect of public life

John Major has taken the unprecedented step of setting up a permanent body to oversee and reform standards of public life in a move designed to deal firmly with growing unrest about the scandals that have dogged his administration.

The move reflects a clear recognition by the Prime Minister that only an independent review can now begin to restore the electorate's battered faith in politicians and public administration.

Mr Major, who yesterday forced the resignation of a second minister accused of asking parliamentary questions for reward, announced that a standing committee chaired by Lord Nolan, a senior law lord, would be given the task of restoring confidence in the conduct of national and local politics and administration.

Mr Major said he had referred to the Director of Public Prosecutions a note of a meeting with a mystery intermediary of Mohamed al-Fayed, the originator of allegations of parliamentary impropriety. The disclosure came after Mr Major was asked if Mr Fayed should be prosecuted for attempted blackmail.

Mr Major explained to MPs that the intermediary told him Mr Fayed had sought a meeting with the Prime Minister because he wanted the 1990 DTI inspectors' report into the Harrods takeover 'revised or withdrawn', and that Mr Fayed was contemplating passing his allegations 'on to others'. Mr Major had said that he was not going to make 'any sort of deal' with Mr Fayed 'regardless of the cost to the Government's reputation'.

The dismissal of Neil Hamilton came after he was confronted by the Chief Whip, Richard Ryder, in the presence of Michael Heseltine, the President of the Board of Trade, with fresh allegations 'unconnected' with those investigated by Sir Robin Butler, and which were said to have come to light late on Monday.

The tense meeting came after a defiant Mr Hamilton outraged Mr Major and Cabinet colleagues by publicly comparing his determination to stay in office with the Prime Minister's when he successfully sued Scallywag magazine over allegations about his private life.

However, the most lasting impact of yesterday's astonishing turn of events will be Mr Major's move in establishing the small but powerful standing committee under Lord Nolan. Tony Blair and Paddy Ashdown, who were told about the committee in advance, are each being invited to nominate a member.

Mr Major's announcement, which went further than expected, foreshadows the widest-ranging inquiry into public standards for 50 years. It has similar terms of reference to the Salmon Commission, set up in 1974 in the wake of the inquiry into bribery by the architect John Poulson.

Mr Major was said by Cabinet sources to have overcome the reservations of senior officials in making clear that he would 'take the appropriate action' on recommendations made by the committee. Although this does not formally bind this or future administrations, the language goes further than is customary when Royal Commissions are set up.

The Butler Report, which Mr Major yesterday published less than 24 hours after receiving it, discloses that Tim Smith, who resigned last week over allegations that he had asked questions on behalf of Mr Fayed, would have been asked to go even if the claims had not been made public. He made clear that he had 'no evidence that controverts' Mr Hamilton's claim that he did not receive payments for Mr Fayed.

Michael Howard, the Home Secretary, yesterday confirmed that he had been one of those investigated and added: 'I would like to take this opportunity to emphasise that I have never been guilty of any impropriety in the conduct of any of my reponsibilities as a minister or Member of Parliament.'

The inquiry: who and what Mr Major announced that the terms of the inquiry would be 'to examine current concerns about standards of conduct of all holders of public office, including arrangements relating to financial and commercial activities, and make recommendations as to any changes in present arrangements which might be required to ensure the highest standards in public life'.

'Holders of public office' include: MPs; ministers; civil servants and advisers; members and senior officers of non-departmental public bodies; non-ministerial office holders; and elected members and senior officers of local authorities.

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