Tories' favourite think-tank sued by Muslim group

Policy exchange, the right-wing think-tank with close links to Conservative leader David Cameron's inner circle, is facing legal action for accusing British mosques of distributing extremist literature.

The Independent has learnt that the Al-Manaar Muslim Cultural Heritage Centre in west London has hired the law firm Carter Ruck to sue the think-tank for defamation. An initial complaint will be made "very soon", a source close to the case said.

Al-Manaar claims that Policy Exchange fabricated several receipts used as evidence of purchase. The North London Central Mosque in Finsbury Park, from which the jailed radical preacher Abu Hamza gave sermons, is also understood to be pursuing libel action against the think-tank through the solicitors' firm Dean and Dean.

Last October the BBC's Newsnight had been due to run an exclusive report on the findings of an article written for Policy Exchange by Denis MacEoin entitled The Hijacking of British Islam. Mr MacEoin argued that extremist literature was widely available in British mosques and shops adjoining them, that much of it was funded by the Saudi Arabian government, and that the Finsbury Park mosque was a major perpetrator of such distribution.

But when Richard Watson, the reporter covering the story, and Peter Barron, then editor of Newsnight, examined the report in detail, they found that five receipts used as incriminating evidence looked fake.

Mr Barron, who did not reject the report's broader conclusions, chose to focus the programme's coverage on doubts about the authenticity of the receipts.

His team claimed to have found "suspicious inconsistencies" among them. These included: forensic evidence suggesting one receipt had been forged while another two that purported to be from different places were written by the same hand; and that there were basic mistakes in the addresses printed on three receipts.

The alleged discoveries, and the editorial decision to focus on them, led to a furious 10-minute exchange between Jeremy Paxman and Dean Godson, research director of Policy Exchange. Mr Godson accused Mr Barron of "disastrous editorial misjudgement" and "appalling stewardship of Newsnight". Mr Barron responded forcefully the following morning on his BBC blog.

Policy Exchange undertook an internal inquiry into the receipts last December, but "adjourned" it because the Muslim researchers they employed went "into hiding for fear of violent reprisals".

Since then, the Al-Manaar Centre has carried out its own investigation, as a result of which it has retained Carter Ruck which is understood to be drawing up a complaint against Policy Exchange.

The director of the Al-Manaar Centre, Abdulkarim Khalil said last night: "This report is still in circulation and has been very widely read. We are determined to clear our name." Nobody from Policy Exchange was available for comment.

The news follows the publication earlier this week of another controversial report by the think-tank which recommended migration from some northern cities to the south of England.

David Cameron, on a tour of the North-west at the time, distanced himself from its conclusions, branding the report "insane".