Lamont payment sparks fierce Commons clash: Nicholas Timmins reports on the latest row over the Chancellor's legal bill

NORMAN LAMONT'S acceptance of pounds 4,700 from public funds to meet lawyer's bills over the disclosure that a 'sex therapist' had become the tenant of his London home yesterday produced the fiercest Question Time clash yet between John Smith and the Prime Minister.

The Labour leader believes the decision to make a payment not covered by existing rules and the failure to notify it separately is a prime example of falling standards in government, a theme he plans to highlight.

He believes it points to uncomfortably close relations between civil servants and ministers, and to the growing government arrogance and secrecy after 13 years in power, despite the Prime Minister's claim to greater openness.

Mr Smith called for the Chancellor to repay the money after he asked John Major whether it was right for taxpayers to foot legal bills 'incurred by a minister in connection with his own private affairs'.

Sir John Bourn, the Comptroller and Auditor General, has said new rules are needed to cover such cases, noting that government lawyers were only consulted after Mr Lamont called in a private law firm to handle press inquiries, and that full records of the decision to make the payment were not kept. The National Audit Office was not notified of it. Senior civil servants, including Sir Robin Butler, the Cabinet secretary, had to use their judgement over the payment which was not covered by existing guidance, Sir John found.

Mr Major said Sir John's report made it 'quite clear no impropriety occurred', and accused Mr Smith of being 'uncharacteristically cheap' when Mr Smith said the money should be repaid and that the Prime Minister did not understand 'the distinction between public duty and private concern'. He added: 'Isn't it clear that the Chancellor instructed solicitors because of his decision to rent his own property to a particular tenant for his own profit?'

With the Chancellor sitting grim-faced beside him, Mr Major said Mr Lamont had not sought assistance and the report 'fully exonerates the Treasury on the central questions: was it right to make the payment and were any rules breached?'

Mr Smith insisted it was a matter of public policy whether taxpayer's money should be used 'to finance legal affairs in a private capacity of a minister', and pointed to a cover-up.

Why, he asked, had the payment been 'concealed under a heading . . . which included the expenses of review bodies and the cost of the BCCI inquiry?'

As Labour MPs chanted 'answer', Mr Major replied: 'It says a great deal that the day after our servicemen have been in action in Iraq and we have troops in Bosnia, that he raises this matter in the House.' Appearing taken aback by the insistence of Mr Smith's attack, Mr Major added: 'I repeat, as he sits there smiling smugly, that the Chancellor did not seek assistance and the Treasury broke no accounting rules.'

Mr Lamont's payment, however, is set to remain in the spotlight with the powerful Select Committee on Member's Interests expected on Monday to criticise him for not consulting the registrar of members' interests on whether he should have declared a further pounds 18,414 towards his pounds 23,000 legal bill. That cash came in an anonymous donation from Conservative Central Office.

The Public Accounts Committee will also decide which of Sir Peter Middleton, Sir Terence Burns, the present Treasury Permanent Secretary, and Sir Robin Butler to question over their judgement that the payment should be made. After a trawl going back a decade, Sir John Bourn has only identified six cases since 1985 of similar special legal payments, or agreement to them. In each of the cases - involving Nigel Lawson, Lord Young, Nicholas Ridley, Tim Eggar, Richard Needham and Colin Moynihan - libel or defamation was involved and the Government's legal advisers were consulted at the outset.