Goldsmith agrees to stay out of cash-for-honours prosecution

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Lord Goldsmith, the Attorney General, has bowed to pressure by letting it be known that he will stand aside from any decision to prosecute Tony Blair or his ministers over "cash-for-peerages".

The Director of Public Prosecutions, Ken McDonald, was reported to have threatened to quit if Lord Goldsmith did not distance himself from advising the Crown Prosecution Service on any move to prosecute members of the Government or senior Labour party officials.

Mr McDonald had already said he would stand aside because he is a friend of Cherie Booth, the Prime Minister's wife. Lord Goldsmith's insistence on being consulted in any such prosecution became untenable after CPS sources privately indicated they would publicly announce that they had been overruled by the Attorney General, if he intervened.

Sir Ian Blair, the Metropolitan Police Commissioner, another friend of the Prime Minister, also distanced himself from the Scotland Yard investigation into alleged breaches of anti-corruption laws.

Yesterday Mr Blair refused to be drawn on Lord Goldsmith's role when he was repeatedly pressed on the row at his monthly press conference in Downing Street. However, Lord Goldsmith's allies last night said the Attorney General would not take part in a review of the prosecution case. "He's going to stand aside," said one source close to the senior law officer. "To do anything else would be madness."

There was an outcry at the weekend when Lord Goldsmith's office said he would expect to be consulted by the Crown Prosecution Service over whether a decision to prosecute was in the public interest.

Harriet Harman, the constitutional affairs minister, defended Lord Goldsmith's integrity but added to the pressure on him by saying that she was "sure" that he would follow the lead taken by Mr McDonald.

The Tories warned Lord Goldsmith, a personal friend of Mr Blair, that there would be a conflict of interest if he did not stand aside.

Mr Blair has yet to be interviewed by the Scotland Yard detectives investigating the loans totalling nearly £14m to fund Labour's election campaign last year by 12 multi-millionaire businessmen, some of whom were proposed for peerages by the Prime Minister.