The room went quiet. `I didn't know you had a loan'

Mandelson : The Biography
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The suite of windowless, low-ceiling basement rooms under the Department of Trade and Industry headquarters in Victoria Street are soulless even by the standards of premises owned by Her Majesty's Government. But on the evening of Wednesday 17 December 1998 nobody minded that. There was a steady hum of euphoric chatter as some of Whitehall's brightest and best celebrated what most of them considered the department's greatest triumph since the general election. Partly, of course, it was because Christmas was coming; there was an end-of-term atmosphere. But it was also because of the event which the civil servants and DTI ministers had come to honour. Peter Mandelson, and his most senior officials, felt that the Competitiveness White Paper, unveiled just over two hours earlier, was the crowning achievement of his six months at the department.

It was a few minutes after they left the party that his 24-year-old assistant, Benjamin Wegg-Prosser, broke the news to Mandelson that his pounds 373,000 home loan from Geoffrey Robinson, arranged in 1996, was soon to become public in a book about the Industry Secretary. If Mandelson was terrified by the prospect, he did not show it.

The following morning, in his large, modernist eighth-floor office, its huge picture window looking down over Westminster Abbey, he convened a meeting with Sir Michael Scholar and other officials. He took this remarkable meeting in what one of those present would later observe was a very "Peterish" way. He asked Sir Michael to refresh his memory on his role, or lack of it, in the DTI investigation into complaints over Robinson's business and financial affairs, including the letters he had written to Conservative MPs on the subject. Back in September, when Scholar had told Mandelson about the investigation into Robinson, by now a Treasury minister, he had accepted the permanent secretary's view that he and other DTI ministers should not be "involved in the process".

When Scholar had finished his resume, Mandelson said quietly: "Well, even if I had not had a loan to buy my house from Geoffrey, I would have still stood aside from the investigation." There was a long, ominous pause. "I didn't know you had a loan to buy your house," Scholar replied, just as quietly. "We'll have to look into it." It was a conversation which should have taken place almost exactly six months earlier, when Mandelson, thrilled to be in the Cabinet at last, and with a department of his own, first arrived to replace Margaret Beckett at the DTI on the day of the reshuffle. Now, though he did not yet realise this, it was too late.

How did it happen? How was it that a politician so famous for being Tony Blair's human radar, so skilled at spotting the treacherous shallows and reefs that lie in wait for any government, could fail to see the jagged rock on which his own boat would founder? One of the Labour Party's most uncompromising chieftains puts himself under an enormous obligation - however generously and innocently conferred - to one of his greatest adversary's closest allies. Then he fails either to consult or inform Tony Blair, his own best friend in politics, apparently for no better reason than that his benefactor has exhorted him not to. When he arrives in government, a bloodied veteran of campaigns against Tory violations of ministerial standards, he does not tell the Cabinet Secretary of his plainly embarrassing financial obligations.

At any point he could probably have prevented the coming catastrophe. If a colleague had been in the same position he would have convened crisis meetings, organised swat teams, devised a media strategy, enlisted accountants, told him to sell his house - virtually anything to defuse the ticking explosive under the seat of government. Instead, even when every three months or so Wegg-Prosser mentioned the loan, usually when they were sitting in the very house it had funded, he merely shuddered briefly and changed the subject. This was, above all, a very secret secret.

Mandelson's own explanation for the secrecy about his home loan was that, back in 1996, he was honouring Robinson's request to keep it confidential; however, he would not have been able to withhold what would anyway have been a prize item of gossip had Blair asked him how he had paid for his house. But Blair had not asked him; and to have told Blair once he was in government would have unacceptably complicated every judgement Blair made which had the remotest bearing on Mr Robinson or his future. But did this really explain why Mandelson did not tell anybody about the loan, apart from Wegg-Prosser, whose father, a solicitor, had carried out the conveyancing for the house purchase and had processed the loan agreement?

After the meeting between Mandelson and Sir Michael Scholar on Thursday 18 December, Wegg-Prosser telephoned Alastair Campbell, the Prime Minister's Press Secretary, to break the bad news, first about the loan, and secondly that it would shortly be made public. The timing was unfortunate. In two hours' time the Prime Minister was due in the House of Commons to make a statement about the bombing of Iraq which had begun the previous night. Indeed, when Campbell, recognising immediately that the loan was what he would later call a "big bad story", went to pass the unwelcome information on to Blair, the Prime Minister looked with understandable irritation at his watch, as if to say: "Why is he bothering me with this now?" Nevertheless Blair paused long enough to ask Sir Richard Wilson, the Cabinet Secretary, to look immediately into the question of whether the loan had placed Mandelson in a conflict of interest because of the DTI Robinson investigation.

Among some of those at Downing Street - though not yet all - there was almost straight away a sense that this might be serious enough to lead to Mandelson's resignation; Mandelson himself believed that, provided it could be established that there was no conflict over the investigation, he would be able to ride it out.

The responsibility for taking the loan was Mandelson's and his alone. He was not the victim of some elaborate honeytrap. He had acted of his own free will. The question of who had exposed him was therefore secondary. But according to all the evidence, exclusively circumstantial as it was, he would not have been exposed had it not been for the fratricidal conflict between himself and the politician he had once idolised above any other. The loan was as secret as it had been inadvisable to take. But its existence had long been known to a handful of Gordon Brown's closest allies, of whom Robinson was one, at least since the turn of the year 1996-97.

According to one source close to the Brown camp, the Shadow Chancellor himself knew about the loan from that period. The author of the imminent Mandelson book, Paul Routledge, was a close friend of Charlie Whelan, the Chancellor's Press Secretary. Routledge and Whelan strongly denied that Whelan had been the source, Routledge being, by his own account, so fastidious in exculpating Whelan that he had tried at the eleventh hour to excise the story of the loan from his book about Mandelson in order to protect his friend even though he was not responsible for it.

But in any event, Whelan was not alone in Brown's circle in knowing about it.It is virtually certain that Brown was not personally responsible for the disclosure. It is much more likely it was from among his most zealous supporters, who knew what deep feelings of betrayal and mistrust he had harboured against Mandelson since the leadership crisis in 1994, that the secret leaked out. It now seems probable that the informant was someone who had believed that if Mandelson was not first destroyed, he would destroy Brown; someone who, like Henry I's knights, set out to rid him of this troublesome priest.

In the immediate period after he had learned that the loan was to be disclosed, Mandelson showed little outward sign of anxiety; on Thursday, he went about his office duties as normal and in the evening went to three separate parties.

At one, given at Duke's Hotel in London by The Independent's editor Simon Kelner, he stayed for an hour or more, chatting amiably to a number of journalists on several topics, including, remarkably, the future of the New Statesman and whether his friend Robert Harris would succeed in buying it from Geoffrey Robinson. He suggested that anyone who had "looked at the figures" would be wary of making the purchase. He went on briefly to a party given by Max Hastings, editor of the London Evening Standard, before returning to the DTI, where the annual party held by all the ministerial private offices was in full swing. Never one to pass up an opportunity to dance, Mandelson enthusiastically led the company in a boisterous conga. The following day he travelled to Hartlepool and held his own annual Christmas party for his constituency activists at his house in Hutton Avenue.

It was when Campbell spoke to Mandelson on the telephone from Downing Street - where he spent most of the weekend because of the Iraq bombing - on Saturday, that Mandelson began to realise just how serious his problem was. He would have to reschedule the loan. And this was precisely what Blair, in two separate telephone conversations with Mandelson that weekend, firmly advised. The loan, he was clear, would have to be paid off. By Sunday Mandelson was able to reassure Blair that he had spoken both to his mother and to his brother Miles and that they had agreed "in principle" that his mother would take an "equity stake" in the house so that he could repay Robinson. But he also acknowledged to Blair that his mother"s funds were not so accessible that this could be done "immediately".

Or in time to stave off mounting crisis. Exposure was now imminent; by Monday The Guardian, quite independently of the forthcoming book, had assembled enough information to put it to both principals that Robinson had lent between pounds 300,000 and pounds 400,000 to Mandelson to buy his house in Notting Hill.

By this time the wise lawyers of the Blair political family, Lord Irvine, the Lord Chancellor, and Lord Falconer, Mandelson"s emollient successor as Minister without Portfolio, had gathered with Campbell, Lance Price and Benjamin Wegg-Prosser at Downing Street (while Mandelson paid what would be his last ministerial visit to the Dome) to discuss both when to release what would now inevitably become public, and what line of defence, if any, would be credible. In the end, despite Campbell"s lingering reservations about the timing, Mandelson and Wegg-Prosser confirmed the Guardian story, adding the detail of the exact amount. So began Mandelson's 24-hour fight for his political life.

The Ministerial Code, which Mandelson was adamant he had not violated, does, in paragraph 123, place a burden on ministers to consult the permanent secretary about "any action which they are considering to avoid any actual or potential conflict of interest" and to inform the Prime Minister in "cases of doubt". Equally, the Members' Interest Register requires registration of "any gift or material advantage received by the Member... from a UK source, which in any way relates to membership of the House". In January the incoming Registrar of Members' lnterests acknowledged that many MPs in all parties believed that loans from fellow MPs did not have to be registered, but made it clear that she was now advising all MPs to register "all loans wherever they come from".

There was, however, a third question, quickly spotted by the Tories. Had he mentioned any loan when he filled in his application form for a Britannia Building Society mortgage? He had not - though at this stage he said that he was sure he would have filled the form in fully, and later that that the loan had not been agreed when the form had been filled in. It would not be until January that the Britannia announced the information at the time of the application had been accurate and that there had been no undue risk to the Society.

In between his visits to the studios, with the experience of mounting a public defence becoming more and more, as he would put it later, "wretched", he telephoned two of his closest friends, Robert Harris and Sir Dennis Stevenson, chairman of Pearson's, to review the struggle. Stevenson, in particular, advised him not to rule out the "option" of resignation as the cleanest way to defuse the crisis. At 10pm he had his first direct conversation with the Prime Minister, by now at Chequers, since the weekend. Blair, worried, tired by the Iraq crisis, and concerned for his friend, asked him for his assessment, as he had done in the past on countless issues in which Mandelson had not personally been involved. Mandelson's reply was that the press were "completely hysterical, out of control, and out for my blood". He was prepared to say that he had made a mistake but not that he had done anything "fundamentally wrong".

The press, however, was unwilling to view either the mistake, or his acknowledgement of it, sympathetically. He was therefore faced with a choice: either he could continue to defend himself and hope - probably vainly - that the tide would turn; or he could go on to say that when politicians made a mistake, they should pay a price - this would almost certainly mean resignation, which would be "very painful". It was at this point that Mandelson appears to have mentioned the dangers of seeming to be, as Blair would later recall it in writing, "like the last lot". Blair listened and suggested that the two of them should sleep on it.

Which Mandelson did. At 7am, he telephoned Wegg-Prosser and proposed that he should telephone Downing Street and ask Campbell, his deputy Lance Price and Jonathan Powell to go over to the DTI later in the morning. The ostensible purpose was to discuss the next stage of his fightback. But Mandelson now acknowledged to Wegg-Prosser for the first time that he might have to resign. At around 8.30, not yet having read what was certainly the most uniformly hostile press coverage he had ever received, he telephoned Gordon Brown.

The very fact that he did so illuminated the complexity of his relationship with that complex man. On the one hand Mandelson firmly believed that the story now threatening his destruction had been leaked by one of Brown's allies.

On the other he was reverting at a moment of maximum crisis to the one trusted friend and colleague he would have consulted unhesitatingly at any point in the period between 1988 and 1994. Brown, moreover, sounded traumatised by the unfolding events. Nor did he think, at this stage, that Mandelson should resign, believing instead that he should face out the embarrassment, make an admittedly quite fulsome apology, but live on to fight another day. Not long after 10am, just as Mandelson was perched on his desk reading his papers, Powell, Price and Campbell arrived; after a short period Price and Powell, though not Campbell, left the room so that Mandelson could telephone Blair. Campbell had been at his side at each of the two most traumatic points of his life: his "outing" by the News of the World in 1987 and the immediate aftermath of his father's death in 1988. Now he was about to witness at first hand his traumatic resignation from the government they had both lived for.

In retrospect this all seems embarrassingly maudlin. At the time it seemed like a family bereavement, which in a sense it was. Indeed, Cherie Booth indicated as much when she telephoned Mandelson from Chequers at around noon and told him warmly that he would "always be part of the family". Where was he going to be later? At home. No, that wouldn't do. He must come down to Chequers in the evening; her children would be there, along with her mother Gale. It would, in other words, be a family occasion. Blair came onto the line and reinforced the invitation: "We want you to be with us."

This was a warm gesture from Blair, a kind man - but also a steely one. Did Mandelson jump or was he pushed? The answer appears to be that Mandelson acted with propriety in raising spontaneously and directly with Blair the possibility of resignation as early as his telephone call of Tuesday evening. By Wednesday morning, Blair had come to his own clear view that Mandelson should go. Mandelson, in other words, had been prepared to resign. But if he hoped, and it would have been unnatural if a part of him had not, that Blair would talk him out of it, then he was disappointed.

It was true that Sir Michael Scholar, who was deeply dismayed by Mandelson's departure, had cleared him of a conflict of interest over Roinson's affairs; Lord Jenkins, a former Home Secretary and Chancellor of the Exchequer, subsequently told a friend of Mandelson's that in view of that he did not need to resign. On the other hand the political price paid by the party and the government, not to mention Mandelson himself, would have been too heavy to contemplate. In the event Blair went out of his way in his official letter to say that he expected Mandelson to do "much, much more with us"; he believed that politicians can rebuild themselves.

Much less officially, he took the trouble to write out, for Mandelson's arrival at Chequers, some private advice on how he might do just that. It was full of common sense. Having faced the knocks, he should accept them and get on with life. He should demonstrate that he was a conviction politician "freed to do and say what you believe in". He should spend more time in Hartlepool. He should "mix more in Parliament and be a team player". And he should sell his house.

`When You Join The Cabinet, You Should Have A Good Home in London,' Said Robinson. `I Can Help'

IT WAS during the summer of 1996 that Mandelson went, at Geoffrey Robinson's invitation, for dinner a deux in the annexe of the Grosvenor House Hotel, where the MP, now a multi-millionaire, occupied a flat with a wide balcony looking across Park Lane and Hyde Park.

The principal topic over the sole was Gordon Brown, and Mandelson's painfully fractured relationship with him. They had already spoken on this subject several times since the traumas of the leadership crisis in 1994, when Robinson, unlike Mandelson, had remained a Brown man. Robinson always made it clear to Mandelson that one of his prime responsibilities was to ensure that the bond between Blair and Brown was never `rent asunder'.

Geoffrey Robinson would say later, when both men had resigned from the government, that Mandelson had "asked" for a loan. The Mandelson version was slightly different: he had indeed explained he wanted to "get settled" soon; once he was a minister he wouldn't want to be bothered with selling his "poky little flat in Clerkenwell". According to Mandelson's friends, it was Robinson, a famously generous man, who said something like: "Eventually, you'll be in the Cabinet, you should have somewhere in London where you can have a good home, where you can bring people round." Mandelson said that he did not have the "resources" and Robinson said: "Well, one day you'll write your memoirs." Mandelson then told him that he would inherit a substantial legacy. When Robinson asked how substantial, Mandelson replied that it would be "in the region of half a million pounds". Then, as Mandelson would later confide in his friends, Robinson said: "Fine - I could tide you over." The conversation was left hanging, with the loan from Robinson not finalised until early October. It was clear from Robinson's tone that he would be in no hurry for repayment.

Mandelson now accepted some more immediate help from Robinson. As someone who knew about property, he could help him find a place. Together, driven by Robinson's chauffeur, they set out house-hunting in W2 and W11.

They visited two or three flats which Robinson pronounced unsuitable. Why not go for a small house instead? This appealed strongly to Mandelson. The first house which attracted him was in Ladbroke Road, just behind Notting Hill Gate. It had an asking price of pounds 500,000. Mandelson made an offer on it but he was swiftly gazumped. But then they found the narrow, four-storey Georgian house in Northumberland Place, a significantly quieter street. It also had the added advantage of being pounds 35,000 cheaper. Mandelson had found a London home he wholeheartedly liked.