Opposition attacks Blair over honesty and integrity

The Tories and Liberal Democrats broke their silence over Cherie Blair's purchase of two flats with the help of a convicted fraudster yesterday, with the leaders of both parties condemning Downing Street's handling of the affair.

The Tory leader, Iain Duncan Smith, said the matter raised "legitimate and genuine concerns", adding: "My concern ... is that without integrity and legitimacy and honesty, then Government cannot function. This must now be settled, otherwise it saps at the very heart of what is the highest office – and the highest office-holder."

The Liberal Democrat leader Charles Kennedy questioned whether journalists had been misled. "I do think there's a legitimate issue about the extent to which the Downing Street machine has handled this sensibly," he told GMTV's The Sunday Programme.

Meanwhile, Downing Street was forced onto the defensive over revelations that the two £250,000 flats in Bristol were bought using money from a blind trust set up for Tony Blair. One was for the Blairs' oldest son, Euan, who is at Bristol University, while the other was an investment.

No 10 denied that the ministerial code and the trust rules – designed to shield the Prime Minister from allegations of impropriety – had been breached. Sources close to Mr Blair appeared to hint that he did not know his wife had "raided" the fund, which is managed by independent trustees, to pay for the flats.

The Prime Minister's official spokesman said the rules preventing Mr Blair knowing where the money was invested only applied to stocks and shares, not property. "We are absolutely confident that the trust was operated on the terms of official advice and in keeping with the trustees," he said. "It is the trustees who have to decide if what is being done is proper."

The trust, which contains the proceeds of the 1997 sale of the Blairs' house in Islington, was set up to avoid conflicts of interest between Mr Blair's investments and government policies.

But doubts were voiced last night over whether its terms have been breached by using it to buy the flats. Maurice Fitzpatrick, tax director at Tenon, the city accountancy firm, said: "A trust is either blind or it isn't... This makes a mockery of the idea that Blair didn't know where the money was invested. His son could tell him."

The latest code of conduct and guidance on procedures for ministers, which was published last year, says: "A blind trust is only blind in the case of a widely spread portfolio of interests managed by external advisers. Once a blind trust has been established, the minister should not be involved or advised of decisions on acquisition or disposal."

Downing Street insisted that one reason for buying the flats in the name of the trust was to protect Euan Blair's security. There were suggestions yesterday that the Blairs may sell the flat used by their son now that its location is known.

Mrs Blair defiantly refused to turn her back on her friend and "lifestyle guru" Carole Caplin – whose boyfriend, Peter Foster, advised on the purchase of the flats, before it emerged that he had a criminal record – announcing that she will accompany her to a carol service at the Albert Hall on Friday.