Osborne and Balls trade blows as MPs vote on bank inquiry

Probe will not be led by judge - but Labour win concession that legal guidance will be provided

The interest rate-fixing scandal provoked bitter personal exchanges in the Commons yesterday between George Osborne, the Chancellor, and his opposite number, Ed Balls.

The pair made little attempts to disguise their mutual animosity as they clashed repeatedly over Mr Osborne's suggestions that the shadow Chancellor had known about the manipulation of lending rates when in office.

Mr Balls denied any involvement and claimed Mr Osborne's conduct "demeaned" the office of Chancellor. "The cheap and partisan and desperate way in which you and your aides have conducted yourselves in recent days does you no good, it demeans the office you hold and most important it makes it harder to achieve the lasting consensus we need," he said.

Mr Balls called on him to withdraw the "false, personal accusations" which were made "purely in the hope of political advantage". But Mr Osborne hit back, and called on Mr Balls to "explain what Labour's involvement was, who were the ministers?; Who had the conversation?; Who were the senior figures?" and said he had to "answer for his time in office".

After the frequently ill-tempered debate, Labour backed down after losing a vote on holding a full public inquiry into the scandal and agreed to work with the Government on a more limited parliamentary investigation into the manipulation of the Libor rate.

Mr Balls said Labour would accept the limited Parliamentary inquiry but added it believed the case for a "full, open judge-led public inquiry" was still necessary and it would "continue to press that case". "The Prime Minister and the Chancellor have made a very grave error of judgement," he said.

The vote on the inquiry came as Barclays enlisted Tony Blair's former adviser Tim Allan to help deal with the crisis engulfing the bank over the Libor interest rate-fixing scandal.

Mr Allan, the founder of Portland Communications, had been hired on a "corporate reputation" brief at Barclays but has now been pulled in to provide advice on handling the fall out from the £290m fines imposed as a result of the scandal.

There were also signs growing fury in the Square Mile at what is seen as "unfair treatment" of the bank and former chief executive Bob Diamond, pictured. Investec analyst Ian Gordon encapsulated the fury in a strongly-worded note accusing expenses-tainted MPs of hypocrisy for attacking bankers' misdeeds. He wrote: "Notwithstanding that the current members of the Treasury Select Committee are (in our view) all of unquestionable integrity, there is a slight irony that these representatives of an organisation with such a rich criminal tradition were interrogating Barclays where less than 0.01 per cent of staff have been accused of attempted Libor manipulation in relation to which (thus far) no criminal charges have been brought."

The Leader of the House, Sir George Young, has agreed to provide the inquiry into the scandal with the services of senior legal counsel. Government sources later confirmed that it was possible that this could result in a QC asking questions in a similar role to that of Robert Jay in the Leveson Inquiry.

Members of the Treasury Select Committee who questioned Mr Diamond this week had been criticised for the lack of forensic examination of the former Barclays chief executive.

Details of the new investigation will be hammered out between the main parties in the next few days. "We've got to sit down with the opposition and establish how this will work," a government source said. "There is a lot to do."

Picky about their clients? The new PRs

Founded in 2001 by Tim Allan, a former adviser to Tony Blair, Portland Communications grew rapidly from a small team of four into an international firm with offices in Nairobi and New York, representing multinational corporations and national governments.

The firm has drawn criticism both for its methods and for the clients it has chosen to represent.

Among those that have sought the services of Portland to improve their image are the governments of Russia and Kazakhstan, as well as international brands such as Stella Artois and McDonald's. The firm attracted particular criticism for representing Kazakhstan, after winning a contract said to be worth as much as £1m a year in 2011. The government of President Nursultan Nazarbaev, the dictator of the oil-rich former Soviet country, was accused in the same year of a litany of human rights abuses, including the detention of activists, and tight control over freedom of assembly, religion and media.

The company has also worked directly for the Kremlin, providing advice on relations with the UK parliament and advising on handling negative stories.

As well as its roster of clients, Portland has also been criticised for its methods.

Earlier this year, the firm was accused of editing the Wikipedia pages of its clients to make them more favourable. This included a claim by the Labour MP Tom Watson that Portland removed unfavourable references to Stella Artois as "wife-beater" from a Wikipedia page.

In April this year, Mr Allan – who reportedly turned down an offer from Mr Blair to become the government's director of communications and strategy in 2005 – sold his majority stake in the company he founded to the US marketing services company Omnicom in a deal thought to be worth as much as £20m.

A month later, the company announced that another of Mr Blair's advisers, the former Downing Street communications chief Alastair Campbell, was joining as a consultant.

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