Jack Straw, the Home Secretary, yesterday announced that he was reconsidering the applications for British naturalisation by the millionaire Fayed brothers, Mohamed and Ali. His move follows a decision to quash an on- going challenge, made by the previous Home Secretary, Michael Howard, against a Court of Appeal ruling that the Egyptian-born brothers' application had been treated unfairly.
Mr Straw also revealed that in future all rejected applicants for British passports will be given reasons why they have been turned down. This is expected to affect between 200 to 300 people each year, most of whom would have been refused for reasons such as criminal convictions, national security risks, or being an unsuitable character. Last year nearly 5,000 people were refused citizenship and told why - mostly because they failed the basic criteria - while 43,000 gained British passports.
On the question of the Fayed brothers Mr Straw said he would decide their applications "on their merits". Home Office officials will now have to draw up new recommendations and reports for Mr Straw, who is not allowed to see advice given to previous governments.
While the decision, which is expected to be made in several months, is not a foregone conclusion it is being tipped in favour of the Fayeds.
Mohamed al Fayed yesterday described the announcement as "an important step forward". "Having lived here for more than 30 years and done my best to play a positive part in the life of this country, I should like to share the nationality of my four British children," he said.
Mr Fayed remains a hugely controversial figure because of his role in the "cash- for-questions" affair. His allegations that he paid thousands of pounds stuffed in plain brown envelopes to Tory MPs to ask questions on his behalf in the House of Commons led to the downfall of former ministers Neil Hamilton and Tim Smith and set off the "Tory sleaze" saga.
Ali Fayed first applied for citizenship in 1993, followed by his older brother in 1994. Although applications normally take nine months to process it was not until March 1995 that they were told of their rejection. The reason for the refusal appears to go back to 1985, when the brothers won the battle with Lonrho's Tiny Rowland for the House of Fraser group, which includes Harrods.
A 1990 Department of Trade and Industry report into the affair described the brothers as liars, in relation to their family background, their early business life and their wealth. However, both the Serious Fraud Office and the Crown Prosecution Service decided there was insufficient evidence to take action.
By 1994, an angry Mr Fayed, his citizenship application apparently stalled, went public over "cash-for-questions". He later sparked the scandal over a stay at the Paris Ritz hotel by Jonathan Aitken, the former Chief Secretary to the Treasury.
There was also controversy over the death of Diana, Princess of Wales, who died in a Paris car crash with his son, Dodi. Mr Fayed said that a nurse at the hospital where she was treated had passed on her "final words and requests" to him - a claim strongly denied by the hospital.
The brothers contribute millions to the Exchequer and are generous to charities, as well as donating pounds 250,000 to the Tory party.