Tony Blair was under pressure to introduce tougher anti-sleaze rules after John Prescott was reprimanded for waiting 11 months to register his controversial trip to the Colorado ranch of US billionaire Philip Anschutz.
Mr Prescott's allies insisted yesterday that he had "done nothing wrong" and would not bow to calls for his resignation.
But his critics said the report by the Parliamentary commissioner for standards, Sir Philip Mawer, could still bring down the Deputy Prime Minister, who will take over the running of the Government in August while Mr Blair is on holiday.
Mr Prescott was also criticised by Sir Philip for failing properly to inform his permanent secretary that Mr Anschutz had given him a cowboy outfit to ride round his ranch. The gifts - a £97 Stetson hat, a £120 pair of calf length boots, a £207 belt and buckle, a pair of £185 spurs plus a pair of jeans and a leather-bound notebook - were put on a list of ministerial gifts to be published on Monday by the Prime Minister.
The cross-party Commons select committee on standards and privileges, chaired by the former Tory minister Sir George Young, decided to take no action against Mr Prescott, after reading the 17-page report by Sir Philip on his failure to register the trip and the gifts until last month.
Sir Philip said Mr Prescott should have registered the trip and gifts earlier and was right to do so after consulting Sir Gus O'Donnell, the Cabinet Secretary. But Sir Philip made clear his investigation could not cover the more serious charge by the Tory MP Hugo Swire that Mr Prescott had breached the ministerial code by taking hospitality and gifts from Mr Anschutz, the owner of the Millennium Dome who is bidding for a super casino. The code advises ministers not to accept hospitality which "would, or might appear to, place him under an obligation".
The committee said: "We share the Commissioner's view, which Mr Prescott came to accept in the light of further advice, following Mr Swire's approach to him, that the nature of his relationship with Mr Anschutz meant that he was accepting hospitality from a source that might reasonably have been thought likely to influence ministerial action."
Mr Prescott strongly denied the charge, saying he had no responsibility for the Dome sale or the siting of the casino, but met Mr Anschutz every six months as part of the regeneration of the Greenwich peninsula.
Mr Blair continued to veto calls for an inquiry by Sir John Bourn, whom he appointed to investigate ministerial conflicts of interest, in the wake of the controversy surrounding Tessa Jowell and her husband, David Mills.
However, the MPs and Sir Philip called on Mr Blair to abandon his veto over the investigation of such allegations in the future and to make Sir John wholly independent. Sir Philip told BBC Radio 4: "This is a gap and it needs to be filled."
Sir Alistair Graham, chairman of the committee on standards in public life, backed Sir Philip, saying: "I remain concerned that the new arrangements for an investigation by Sir John Bourn ... were not invoked in this case at the time when the allegations were made."Reuse content