Tories face slow death by Scott

HIS INQUIRY has sifted more than 200,000 sheets of paper and interviewed 264 witnesses. Already a leak has provoked calls for one minister, William Waldegrave, to resign. Others thought to be vulnerable include Sir Nicholas Lyell, the Attorney-General, Malcolm Rifkind, Secretary of State for Defence, and Kenneth Clarke, the Chancellor.

The cloud which hangs over the Government was almost visible last Wednesday, when the Tory party's great and good gathered for a champagne reception to celebrate the golden jubilee of the Conservative Political Centre. As Gillian Shephard's speech dwelt on the "squalls and difficulties" facing the Government, in walked Mr Waldegrave, who found himself standing next to the Attorney-General. Embarrassed smiles all round.

That the Government faced political trauma over Sir Richard Scott's inquiry into the sale of arms to Iraq has hardly come as a surprise. It was set up in November 1992 in the wake of the collapse of the Matrix Churchill trial, and the public reaction to claims that ministers had both misled the Commons and been willing to consign British exporters to jail sentences although they had been co-operating with the security services. The arms- to-Iraq crisis came hard on the heels of John Major's big fall from grace: the humiliating exit from the Exchange Rate Mechanism in September that year.

Under acute pressure, the Prime Minister set up an inquiry - a course his predecessor, Margaret Thatcher, had done her best to avoid. The subject was kicked into touch. But, with hindsight, Mr Major may have come to regret the freedom he gave Sir Richard to run his inquiry. In its structure the arms-to-Iraq inquiry departed from the tenets of Lord Justice Salmon's 1966 Royal Commission into public inquiries, set up in the aftermath of Lord Denning's inquiry into the Profumo affair. One of Lord Salmon's "six principles" would have allowed witnesses to cross-examine evidence that might affect them.

Lord Justice Scott later explained his reasons for not allowing this routinely, referring to a government inquiry into the Crown Agents where, he said, "rows and rows of seats were filled by lawyers representing all the various interests that might be affected by the evidence. . . . There were 27 individuals separately represented. . . . The public hearings lasted for 260 days".

Wary of potential criticism, Lord Justice Scott built in safeguards to try to avoid the possibility of a judicial review of his findings. Witnesses were sent detailed questionnaires outlining the areas of dispute. They then made written, and in some cases oral, statements to the inquiry.

Finally, those criticised were sent draft copies of the report and invited to dispute Sir Richard's findings. The judge is, as a source close to the inquiry put it, "determined no one is going to say, 'You didn't think of this' or 'You didn't report that'."

Was this cumbersome procedure sensible? The inquiry was bitterly attacked by Lord Howe, the former Foreign Secretary, because of the lack of the right to cross-examine. Ironically, had Labour's advice been taken in 1992 the more traditional type of inquiry would have gone ahead.

Sir Richard's aim of a watertight report has had two consequences. First, the inquiry has been yet again delayed. Minister and officials sent drafts have taken longer than expected to respond; the fact that the first batch - sent out about six weeks ago - had not returned forced the committee clerk, Christopher Muttukumaru, to announce last Monday that the report will not be completed before September. That seems highly optimistic since the second and most controversial section, on the signing of Public Interest Immunity Certificates (which might have prevented vital evidence being given at the Matrix Churchill trial) is only now being drafted. Assuming that those criticised in this section take three months to respond, and that there is a summer break, November or December seems more likely.

The second consequence was that the draft report became vulnerable to leaks. The source of last Monday's leak remains a mystery. In political terms, although Mr Waldegrave felt the leak unfairly tarnished his reputation, his immediate prospects of survival have slightly improved. He enjoys the backing of the Prime Minister in his attempt to clear his name in the final draft. (For one thing Mr Major is also hoping to get the section dealing with his involvement changed). Mr Major too is marginally better off. Criticism of his role was made public but was buried beneath the publicity surrounding Mr Waldegrave. By November, when a leadership challenge could be mounted against him, Sir Richard's criticism of him will be old news.

But the leak has been bad for the Government, rekindling debate over the key issues of the inquiry. The first involves the alleged secret change of ministerial policy over arms-to-Iraq. The leaked draft ruled that Mr Waldegrave's answers to MPs were "apt to mislead", and that he indulged in "sophistry". No one believes that all sensitive government information should be available - for example, Sir Patrick Mayhew, Secretary of State for Northern Ireland, escaped criticism after misleading Parliament over talks with the IRA. But, as one senior Tory put it, "That was lying to protect Britain's vital national security. This is lying to make an arms exporter a few bucks."

Sir Richard will also have to rule on the extent to which the civil service is culpable in pulling the wool over the eyes of MPs. One ex-minister said last week: "My officials used to confide cheerily that the first principle of parliamentary accountability was to tell it as little as possible." Aware of the danger to its reputation, certain elements of Whitehall have been less than fully co-operative, and many last week saw the civil service as the source of the leak.

More politically damaging is the second key issue: the signing of the PIICs. As one Tory MP put it last week: "The accusation of 'sophistry' against William Waldegrave is hardly going to get them going in the saloon bars. The idea that ministers were willing to consign people to jail when the knew they were working for the intelligence services is rather different."

Those who signed included Mr Rifkind, Mr Clarke, Michael Heseltine, President of the Board of Trade, and Peter Lilley, Secretary of State for Social Security, both of the latter expressing reservations. While Mr Heseltine, the man increasingly seen as the party's only possible saviour, emerges unscathed, Mr Major can expect only grief from Sir Richard's report. Mr Major is getting increasing flak from his backbenchers, who blame his lack of leadership for the existence of the inquiry in the first place.

At worst the Scott report could blow apart Mr Major's Cabinet, forcing resignations just before a November leadership challenge. At best it will still feed the steady growth of cynicism about Mr Major's administration. As one senior Tory admitted: "The fact is you have William Waldegrave fiddling about with export orders, Lyell arguing the merits of some antiquated procedure, and two or three ministers blindly signing the PIICs. I'm not sure it's a full-blown scandal, but taken together it just looks sleazy."

Alan Watkins, page 25

Leading Article, page26