Prison chief sacked by Howard offered a pounds 200,000 deal

Michael Howard, the Home Secretary, is arguing that the former prisons chief Derek Lewis was not wrongfully sacked last October - while at the same time offering to settle his legal claims for pounds 200,000.

Mr Howard's insistence that he did not unlawfully dismiss Mr Lewis from his pounds 125,000-a-year post has been formally declared in the defence submitted by Treasury solicitors to a High Court application next Friday for disclosure of documents relating to his wrongful-dismissal claim. It is the latest attempt to quietly buy off Mr Lewis while keeping the lid on the embarrassment caused by his summary sacking after the Learmont jail escapes report - but it could backfire.

According to Whitehall sources, the Home Office has already privately conceded that Mr Lewis, now non-executive chairman of UK Gold, the satellite TV company, met all his performance targets while in charge of the service. Sources have also suggested that several highly placed Home Office figures were uneasy about the sacking. In the meantime, "without prejudice" negotiations to pay compensation have already begun with Mr Lewis's solicitors, the London firm Russell Jones & Walker.

The Home Office appears to be seeking to have things both ways - preparing to hand over cash to avoid a damaging legal action, while seeking to avoid the political embarrassment ofsaying Mr Howard was right.

Government lawyers have been urgently seeking ways of avoiding a possible order to hand over crucial documents after next Friday's hearing. These could reveal that Mr Lewis both met his targets and suffered ministerial interference in the day-to-day running of the supposedly arm's-length prisons agency.

The Home Office defence is understood to argue that none of these documents is relevant because Mr Lewis was not unlawfully dismissed, but his lawyers have responded with a demand for particulars to back up that claim. The implication is that Mr Lewis will not negotiate an out-of-court settlement without an admission from the Home Secretary that he acted unlawfully in sacking Mr Lewis.

An alternative method of seeking to block the release of the documents would be for the Home Office to claim public interest immunity - but, in the wake of the Scott arms-to-Iraq report, that might well be viewed as act of desperation.

The pounds 200,000 on the table is designed to compensate Mr Lewis for the loss of a year's salary, his performance bonuses and employer's pension contributions, and to cover his wrongful dismissal action and a parallel industrial tribunal claim for unfair dismissal.