A confidential inquiry has found that civil servants "discriminated against" Guppy because they did not want to embarrass the Government in the week of the 1994 Conservative Party conference by allowing him out on day-release.
Guppy, now 30, was sentenced to five years in 1993 for his part in a £1.8m fraud. He is regularly allowed out, but his notoriety meant that releasing him for the day in October 1994 might have attracted media attention when the Conservatives were discussing law and order.
In what constitutional experts described as an "extraordinary" example of political decision- making by the supposedly impartial Civil Service, the Prisons Ombudsman found Prison Service documents which baldly stated there was "no way" that Guppy could be granted a day-release from Ford open prison in Sussex during the week of the conference as publicity "would be damaging to ministers".
In his 11-page report on the affair, Sir Peter Woodhead said the refusal to allow Mr Guppy out for the day was a breach of the civil servants' "duty to treat all prisoners equally".
He accuses Mr Lewis, the Prison Service press office, and senior prison officials of failing "to give a full answer" to Mr Guppy's MP, the press and Guppy himself and tells Mr Lewis to apologise.
Most seriously for Mr Lewis, the ombudsman found evidence that the director- general might have misled Michael Forsyth, the Prisons Minister.
Peter Hennessy, Professor of Contemporary History at Queen Mary's College, London, and Britain's leading authority on Whitehall, described the report as extraordinary.
"What is rare about this is that it is on the record," said Prof Hennessy. "It is absurd and wrong for civil servants to anticipate the pangs of embarrassment a Home Secretary might face. This has been the principle since Mr Gladstone reformed the Civil Service in the mid-19th century."
Guppy, an old-Etonian and close friend of Earl Spencer, brother of the Princess of Wales, is one of the most famous prisoners in Britain. He and his partner staged a false robbery in a New York hotel room in which a shot was fired and he was left tied up. The pair claimed £1.8m compensation from Lloyd's for jewellery they said was stolen.
He was sent to Ford open prison because he was considered a low security risk. Like all other inmates he was entitled to two "town visits" - days out of the prison - a month. But the civil servants knew that the press was after him. On an earlier trip Guppy had been chased by reporters.
Last year he applied to be let out on 11 October and was refused. Guppy complained and was told that the visit had been refused because he had already been due to have four days of home leave with his wife, Patricia, ending on 10 October.
Mr Forsyth gave the same reason when he was asked about the case by Nicholas Scott, the Conservative MP for Chelsea, Mr Guppy's constituency.
Derek Lewis told Mr Forsyth that the timing of the Tories' Bournemouth conference was not the main reason for the decision. "Although the timing of the visit was considered," he said in a note to the minister, "the application was refused because Mr Guppy had only returned from home leave the previous day."
Mr Lewis then drafted a letter for the minister to send to Mr Scott, which repeated the claim.
When the Independent on Sunday asked the Prison Service press office about the case last year, it too denied that any attempt was being made to save the face of Michael Howard, the Home Secretary.
These assurances are contradicted by documents found by the Ombudsman. On 24 October, Philippa Drew, Prison Service Director of Custody, wrote to Derek Lewis and was quite explicit about the political fears which had led to the request being turned down.
The case had been sent to her and she decided not to let Guppy out. "I discussed it with Mr McLean [of the service's south coast area office] and said that there was no way that Mr Guppy should be granted temporary release during the week of the Conservative Party conference as the resultant publicity would be damaging to the Prison Service and to ministers."
Other documents reiterate the point. A memo from the south coast area office on 17 October said: "A decision to allow a town visit the day after returning from home leave would be dubious at any time, but during party conference week, when much media attention was likely to be on law and order, would have been asking for trouble."
Earlier the same office said: "In view of the political sensitivity surrounding temporary release, the need to avoid any likely embarrassment at this time must take precedence.
Asked by the ombudsman to explain her memo, Ms Drew said the reference to ministers was "otiose" and that by definition anything damaging to the Prison Service also damaged ministers.
Mr Lewis denied that he had misled Mr Forsyth. "There seemed little point in mentioning earlier considerations" about the party conference, he said.
The ombudsman did not accept Mr Lewis's account. It was clear that prisoners at Ford could schedule their town visits on whatever day they wanted, he said. Ms Drew's memo on the need to protect ministers was "clearly the most convincing explanation available".
The director-general claimed that the contradictory reasons given to the ombudsman for refusing leave were "snapshots of the decision process taken at different moments". But Sir Peter said there was no process. A single decision had been taken by Ms Drew because of fears about embarrassing ministers.
"Mr Guppy should receive an apology for the refusal of his town visit and for the failure to give a full answer to his complaint," he said.
Yesterday Mr Scott said he wanted a copy of the ombudsman's report and would be asking for an explanation of the misleading Home Office letter.
Jack Straw, Labour's Home Affairs Spokesman, said the report revealed how politicised the Prison Service had become. "We're now in the worst of all worlds where civil servants second-guess ministers and keep the real reasons for their decisions from them. If I were Michael Forsyth, I would be very angry with Mr Lewis."
Patricia Guppy added that the report exposed "the shady, behind-the-scenes dealings'' which dictated her husband's treatment in jail.
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