A reply in the former Prime Minister's name to a written parliamentary question by the Labour MP Harry Cohen was one of a number acknowledged by a senior export official as being 'inaccurate, misleading and untrue'.
Eric Beston, a former head of the Department of Trade and Industry's export controls and licensing branch, said answers to MPs' questions owed more to an 'art form' than a means of communication.
The former Prime Minister's reply in April 1989 claimed there had been no change in government policy on defence sales to Iraq.
In reality, the guidelines had been 'revised' by ministers in 1988 following the end of the Iran-Iraq war to allow more equipment to go to Baghdad, Mr Beston said. As a result, her reply, which was drafted by civil servants, gave a 'misleading impression'. He told the inquiry he did not know whether Lady Thatcher was ever told of the new, relaxed interpretation of guidelines before giving the answer.
When challenged on another parliamentary answer, Mr Beston claimed it was 'verging on misleading'. Pushed further, he admitted it would have been better 'if it had been a shorter answer' by omitting the misleading paragraph.
Lord Justice Scott replied: 'It would have been better if it had been an accurate answer.'
Mr Beston said: 'I think the way in which questions are answered in Parliament tends to be something of an art form rather than a means of communication.' He said not all questions were answered fully.
Civil servants tried to avoid answers that were 'demonstrably wrong' as a general rule but political exchanges in parliament had led to instances where information beyond the strict limits of the question was not necessarily 'volunteered,' he said.
A decision by ministers not to publicly announce the new 'revised' guidelines following the ceasefire in the Iran-Iraq war posed problems to officials drafting replies. The misleading answers were consistent with ministerial policy, he conceded.
Lord Justice Scott said officials were going down a 'logic-chopping road' by claiming there had been no change when there had been one. Mr Beston said they found themselves in a 'cul de sac'.
Mr Beston also described the 'haphazard' method by which intelligence reports were distributed inside the DTI. Officials who received security clearance to read secret intelligence reports were notified on a slip of paper by the department's sensitive documents unit when reports arrived that might interest them.
The documents could be read inside a special reading room which was only open for two hours in the morning and two in the afternoon. The reports were kept for two weeks after which they were sent back.
The hearing continues today.