Ministers said to be soft on terrorism

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Ministers and police were accused of being slow or unwilling to tackle state sponsors of terrorism in Britain "for fear of losing trade and markets".

Evidence published with the Home Office inquiry report by Lord Lloyd of Berwick, a senior law lord, claims Britain is also putting exports above the fight against terrorism - a charge strongly denied last night.

The allegations, which have strong echoes of the charges against the Government in the Scott inquiry into the arms to Iraq scandal, were described as dynamite by opposition sources and are certain to lead to demands for action in the Commons next week.

Lord Lloyd is urging the Home Secretary, Michael Howard, to take new powers to tackle terrorist groups who use London as a base for raising money or organising acts of terrorism abroad. He calls for a change to the law on conspiracy to procedure those "who conspire to commit terrorist acts abroad". He also suggests copying the approach used by France and Germany to proscribe named terrorist organisations to ban them from fund- raising.

Lord Lloyd makes it clear that investigating trading links was not part of his remit for reviewing Britain's anti-terror laws, but volume two of the report contains a serious indictment of the authorities by Paul Wilkinson, professor of international relations at St Andrews University. "We should note the apparent reluctance of ministers and the police to utilise fully and rigorously the powers they already have to seek out terrorist assets and have them frozen, pending the result of criminal proceedings.

"There is a notable slowness (or unwillingness?) to use such powers against state sponsors of terrorism for fear of losing trade and markets," Professor Wilkinson asserts. The "present ambivalence" in the UK's policy towards Iran should be seen in the wider context that Iran is engaged with client Islamic groups in trying to undermine the Middle East peace process, which is so vital to future stability, he adds. "Yet Iran is being rewarded with more access to British trade and services."

The Home Office last night played down the allegations as an academic study.

"Obviously the professor is entitled to give his views but we are looking at the recommendations of Lord Lloyd, not at the academic report."

But Lord Lloyd says in his report that he has drawn heavily on the special report commissioned by his inquiry from Professor Wilkinson. Jack Straw, Labour's shadow home secretary, said: "These are very serious matters and Labour will be calling for Malcolm Rifkind (Foreign Secretary) to make a full explanation of these grave allegations." Britain has a trade embargo against selling military equipment to Iran but has no embargo for other goods. A bilateral agreement was recently agreed to repay pounds 20m in debts as a first step to lifting a block by the Exports Credit Guarantee Department on credit for Iran.