Lord Callaghan of Cardiff demanded the Cabinet minister, who is in charge of open government, retract an implication that he had deceived the Commons over devaluation in November 1967 .
The former Labour prime minister, whose handling of the Commons during the devaluation crisis was cited as an example by Mr Waldegrave in his evidence to the Treasury Select Committee, wrote to the minister yesterday calling on him 'to clear my name' of the suggestion that he lied.
As Chancellor he had parried questions in a celebrated series of angry exchanges in the Commons after the Cabinet had decided to devalue. Yesterday he complained that 'there was nothing in any of my answers that could lead anybody to the conclusion that I had lied to Parliament'.
Mr Waldegrave sought to defuse the row by writing to Lord Callaghan to emphasise that he had in no way attempted to impugn his honour. He said Lord Callaghan had acted 'brilliantly' in a way that the whole House of Commons had understood.
On Wednesday, Mr Waldegrave had tried to defend Sir Robin Butler, the Cabinet Secretary, who had earlier told the Scott inquiry that, in exceptional circumstances, ministers would be justified in giving misleading answers. He told the committee: 'Lord Callaghan and Stafford Cripps - both great men - rightly defended the pound saying things that subsequently turned out to be untrue. Nobody blamed them at all.'
Downing Street insisted there was no question of Mr Waldegrave resigning and John Major said: 'Mr Waldegrave answered an intelligent question frankly about what had happened under another government a quarter of a century ago.'
Lord Callaghan said Mr Waldegrave had inflicted an 'unintentional injury' on him. But ministers last night appeared convinced that the flurry was short-term and Mr Waldegrave's career prospects had not been damaged.
Politics & Policy, pages 10, 11
Leading article, letters, page 19
Andrew Marr, page 21
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