Blair backs Jowell as she says her husband did not mention £350,000

Tessa Jowell made her husband David Mills the fall guy yesterday for failing to follow the Ministerial Code by declaring a £350,000 "gift" allegedly from Silvio Berlusconi, the Italian Prime Minister.

Tony Blair cleared Ms Jowell, one of his closest Cabinet allies, of breaching the code - which could have forced her to resign - after she blamed her husband for keeping her in the dark for four years about the payment.

But the report by Sir Gus O'Donnell, the cabinet secretary, pointedly stopped short of giving her a clean bill of health and left a host of unanswered questions.

The key question being asked by MPs last night was why had Ms Jowell - regarded as one of New Labour's brightest ministers - not asked her husband about his financial dealings, even though she had twice signed forms to remortgage homes in London and Warwickshire in June and September 2000.

In a frank statement about her family finances, she said she knew nothing about the money her husband received in 2000 until she was "made aware" of it in August 2004. She did not reveal why he waited four years to tell his wife about the gift of US$600,000, it is thought he told her while they were on a holiday.

Last night Ms Jowell faced calls for her resignation from her own side. "This affair has undermined the credibility of the party and the Government. Pushing money into offshore hedge funds is not the Labour way," said Peter Kilfoyle, a former defence minister. "She should go now to restore some credibility in the Government."

Martin Bell, the former independent MP and anti-sleaze campaigner, led calls for the Prime Minister to be stripped of the power to act as judge and jury over ministers, and for an independent body to oversee the Ministerial Code.

Ms Jowell emerged from the debacle more wounded than many of her friends expected. Ministerial allies rallied around her on Wednesday, saying she had done nothing wrong. However, Sir Gus found she had failed to inform her permanent secretary, Sue Street, about the alleged gift.

He said: "She fully accepts that Mr Mills should have informed her and if he had she should of course have reported it to her permanent secretary."

The code says that any minister in doubt about gifts "should seek the Prime Minister's guidance". Ms Jowell did not.

But Mr Blair decided to clear her of breaching the code. He said: "I accept Tessa's assurance that she did not know about [the money] until the issue was resolved with the Inland Revenue. In these circumstances, she is not in breach of her obligations under the Ministerial Code."

However, Mr Blair added: "In doing this, I make it clear that I am not in a position to make any finding about the nature of the sum of money received by Tessa Jowell's husband, which is the subject of Italian court proceedings."

David Cameron, the Tory leader, ordered his front bench to go easy on Ms Jowell in line with his softening of the Tory image. But Tory backbencher Nigel Evans, a member of the Commons select committee on Culture, said: "It's a complete whitewash. The Ministerial Code is in tatters unless she goes."

Ms Jowell could suffer further damage, if the Milan prosecutor carries out a threat to press charges against Mr Mills, Mr Berlusconi's corporate lawyer, as well as the Italian Prime Minister.

Downing Street's fear is that the trail ultimately will lead back to Mr Blair's door. The Blairs have holidayed with Mr Berlusconi and accepted his hospitality.

Ms Jowell admitted that her husband had received money which he thought was a tax-free gift in 2000 but had not told her about it until 2004. The Inland Revenue had by that time ruled that it was earnings and had to be taxed. Under the Ministerial Code, Ms Jowell should have notified her permanent secretary, Sue Street, of a gift, but because of the Inland Revenue ruling she said she did not "consider it necessary to make any reference about any of this to my permanent secretary". She added: "I fully accept that my husband should have informed me and if he had, I would of course have reported it to my permanent secretary."

Ms Jowell told Sir Gus she owned their Kentish Town, London, home jointly with her husband but he owned their country house in Warwickshire. On 9 June, 2000, her husband took out a loan using his Warwickshire house as security for home improvements and an investment, but her signature was needed because the bank regarded Ms Jowell as a resident of the Warwickshire property. On 20 September the same year, she signed papers to allow Mr Mills to take out a loan on their London home to make further investment.

She said: "My husband has a number of investments and I knew there would be no difficulty in repaying the loan. I knew nothing more about the nature of the investment. I was not aware until recently that the loan had been repaid shortly after it was taken out, so our London home was no longer needed as security."

The Labour chairman of the Commons public administration committee, Tony Wright said: "It tells us more about the Jowell marriage than it does about the Ministerial Code. For most of us it would be a cause for comment if several hundreds of thousands of pounds were coming in and out of the household account, but apparently not in their case. The long-term effect of this is there will be a lot more people wanting to be corporate lawyers, though they would be well advised not to marry cabinet ministers."

The remaining unanswered questions in a story that keeps changing

Did Silvio Berlusconi bribe David Mills?

This may be decided in a Milan court this year. The prosecutors have amassed a 15,000-page dossier tracing an international paper trail they say proves Mr Mills lied in court on behalf of Mr Berlusconi and was paid a £350,000 bribe. It includes a letter from Mr Mills to his accountant in which he admits receiving money from the "B people" and claiming to have turned "tricky corners" and kept "Mr B out of a great deal of trouble". When Italian investigators confronted him with this evidence, Mr Mills told them the cash was from Carlo Bernasconi, an aide of Mr Berlusconi.

Why does Mr Mills keep changing his story?

Unclear, although the case is extremely complex. Mr Mills claims to have now established his own paper trail proving the money came from a client, Diego Attanasio. Mr Attanasio has told prosecutors he was in jail facing corruption charges at the time.

Mr Mills also claimed he signed a "forced confession" by the prosecutors - although his lawyer retracted this. Finally, Mr Mills' claim that he and his wife's finances were "totally separate" was proved inaccurate when it emerged their joint mortgage was linked to the paper trail.

Why were the Jowell-Mills homes repeatedly mortgaged?

Both homes were bought with cash and Mr Mills released equity generated by soaring house prices to fund investments and home improvements. But it is highly unconventional to gamble the family home on the high-risk hedge funds favoured by Mr Mills. The "hot" fund that required the quickie mortgage before the arrival of the "gift" money failed to perform.

How close was Mr Mills to Mr Berlusconi?

The Italian Prime Minister claimed never to have met Mr Mills, although it is now clear they met on at least two occasions. Their business relationship began in 1980 when Mr Mills built a portfolio of companies in the UK to help Mr Berlusconi with tax avoidance measures. According to The Economist, Mr Mills was "beneficial owner" of three companies owned by Mr Berlusconi and director of another. CMM, a company owned by Mr Mills, was company secretary to a further 17 Berlusconi companies. In July 1996, Mr Mills received a £1.5m dividend from his work. Italian prosecutors have unearthed a further £1.16m transfer into Mr Mills' Swiss account.

Did the British Government block Mr Mills' extradition?

No. According to Tony Blair, the request from the Milan prosecutors to the Serious Fraud Office went through the appropriate channels when it was passed to the Italian embassy by the Home Office.

Why did it take so long for Mrs Jowell to find out?

The crucial question. Sir Gus O'Donnell's inquiry accepts her claim that she knew nothing of the receipt of the £350,000 "gift" until August 2004 - five years after it was proffered. But most couples will find it astonishing that she knew so little of the family finances.

Jonathan Brown