The Secretary of State for Trade and Industry denied any impropriety or conflict of interest and said he had broken no rules. But the Tories said the loan, given in 1996 and yet to be repaid, smacked of cronyism. Some Labour backbenchers said he should resign from the DTI to clear the air.
Tony Blair was first told of the loan on Thursday last week and asked Sir Richard Wilson, the Cabinet Secretary, to investigate. "This was the first that he knew of the loan. He discussed it with Sir Richard Wilson who spoke to Michael Scholar, [the permanent secretary at the Department of Trade and Industry]", the Downing Street statement said. "He has told Sir Richard that the DTI have ensured that Peter Mandelson and other DTI ministers have not been involved in the department's consideration of the allegations about Geoffrey Robinson's business interests.
"The Prime Minister is therefore confident that Peter Mandelson has been properly insulated from any decision relating to Geoffrey Robinson."
Mr Mandelson said he had not disclosed the loan to the permanent secretary "as I had agreed with Geoffrey Robinson that it would be a personal matter between us".
The Trade and Industry Secretary issued a statement last night through his department, confirming the loan was given in October 1986, before the general election. He paid back pounds 40,000 and is seeking, with the help of his mother, to repay the rest to the Paymaster- General, with interest.
"In September 1998 the Permanent Secretary of the DTI advised me that the department was considering allegations concerning Geoffrey Robinson's business affairs. We agreed that I should not be involved in this process," Mr Mandelson said.
"With the benefit of hindsight, it would have been better if all the facts had been out."
Officials said there had been no impropriety because Mr Mandelson had broken no rules governing the conduct of ministers or the disclosure of members' interests. But the existence of the secret loan by one minister to another at the height of demands by the Tories for Mr Robinson's resignation will reopen the sleaze allegations against the Government. In addition to being a cabinet minister, Mr Mandelson is a member of the inner Blair circle. At the time of the loan, Mr Robinson, whose Tuscany home has been used for holidays by the Blairs, was also an insider, but is now said to be far less close because of allegations surrounding his finances.
Labour MPs were furious at the disclosure. "It will damage the party. We were going to clean up sleaze but this stinks. It makes Mandelson's position untenable and he should resign. Some of it is going to stick to Blair. The wrapper is coming off," one said.
The disclosure is certain to add fuel to the speculation that Mr Robinson could be forced to leave the Government over a series of failures to disclose his business interests. He has survived threats to sack him since the election with the patronage of Gordon Brown, the Chancellor, who fought a rearguard action to stop his millionaire minister being sacked in July.
Mr Mandelson's political career was not in any immediate danger with the backing of Tony Blair but the disclosure will raise questions about his judgement. The Tories have been targeting Mr Mandelson for searching questions about his private life, and even some Labour MPs have questioned where Mr Mandelson got the money for his stylish living.
He bought a house in Notting Hill, west London, with the proceeds of the loan.A senior party source said the house cost more than pounds 400,000 and Mr Mandelson had also taken out a building society mortgage. He owes pounds 332,375 to Mr Robinson. "The loan was always intended to be a short term arrangement and I am in the process of repaying the remainder of the loan in full with the help of my mother," Mr Mandelson said.
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