John Rentoul: So, Gordon, how will you handle BAE?

Should Britain have armed forces? If so, should their weapons be made by British companies? If so, should those companies, as well as arming this country's military, sell weapons abroad? If so, how officiously should we strive to avoid the payment of bribes? Tony Blair's implied answer to that last question is: a bit more officiously than most other countries, but not so strenuously that we cut ourselves out of the arms trade.

He cannot say so directly, which is why his reasons for dropping the Serious Fraud Office (SFO) investigation of BAE's contract with Saudi Arabia sound so unconvincing. "This investigation, if it had gone ahead, would have involved the most serious allegations and investigation being made of the Saudi royal family," said the Prime Minister in Heiligendamm last week.

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It was a hopeless defence. The allegations have been made: the investigation was to find out if they are true. What he meant, he went on to say, is that the investigation would lead to the "complete wreckage" of relations with Saudi Arabia, "a vital interest to our country".

Spin? He couldn't spin his way out of a revolving door. On the day he had persuaded Evil Incarnate, aka George Bush, to join a global effort to cut greenhouse gases he is criticised for "letting Bush off the hook" and presented as a man covering up British corruption. And if you do not like spin, the Attorney General must be one of the straightest people in public life. His denial that he "ordered investigators to conceal payments from the OECD" was so measured that it had no effect, not least because he then refused to comment on "individual allegations" because of "confidentiality provisions".

But it really does not matter what the outgoing Prime Minister or the outgoing Attorney General say. Once again Blair is in Saint Sebastian mode, taking the slings and arrows of righteous criticism so that Gordon doesn't have to.

But Gordon will have to, starting in 17 days' time. This demands the sort of courage not normally associated with Edith Cavell or Nelson Mandela, or any of the other six case studies in Courage: Eight Portraits, the Chancellor's book on the subject published last week. Brown will have to find unusual bravery to hold out against the tsunami of sanctimony that is ready to break over his head.

He, too, will have to decide how the Government responds to requests for information from Swiss investigators. He, too, will have to decide how much he wants to take the rap for a huge arms deal signed by the Conservatives more than two decades ago. He, too, will have to take supervisory responsibility for continuing payments made to British companies by the Saudi government, under headings that will include "marketing" or "support services".

Once Blair-hating, or Blair's useless spin, is taken out of the equation, the dilemmas will still have to be faced. When Blair's phrase about the Government having to be "purer than pure" - uttered as a warning to ministers to be careful of paid lobbyists - cannot be thrown at the Prime Minister every day, the critics of the arms trade might find that they too have questions to answer.

At the moment, by assuming that "purer than pure" is a cost-free position, they find that, without meaning to, they come close to arguing that Britain should not be part of the arms trade at all. That is a respectable view (unlike pacifism, which is always treated as respectable when it isn't). But there are complications. It means that this country's arms industry would be small and its prices high. It means that the British armed forces would have to buy more of their weapons from abroad, because they would not be made here.

When Sir Menzies Campbell, the Liberal Democrat leader, complained about "the Government's handling of this squalid affair", he did not acknowledge that there are thousands of British jobs dependent on Saudi government contracts. Maybe there shouldn't be. But anyone proposing that these workers should be laid off is under an obligation, not least to them, to show that they have taken their interests into account. Sir Menzies says he is simply arguing that Britain should adhere to the highest anti-corruption standards in its foreign trade. No, he is not: he is arguing for a standard so high that it would put British jobs at risk. Maybe, again, that is a price worth paying, but it is not a price that can just be ignored.

On Thursday's Today programme, Sir Menzies stepped up bravely to the stirrup of his high moral horse and declared that "we can't go round the world telling people in Africa... to stamp out corruption" if we will not stamp out our own. It sounded great, but it is a debating point. He denied that his righteousness would "scupper the deal". All it would do, he said, is cause "embarrassment and difficulty". How does he know?

Blair's position now - which will be Brown's position in 17 days - is that Britain tries to avoid the worst excesses of corruption in a global industry in which corruption is endemic, partly because so much of it is government-controlled. Even Sir Menzies accepts that anti-corruption law in Britain was made more stringent in 2002, but give Blair credit for it? No chance: it is just another stick with which to beat him for being a hypocrite.

Britain tries to move the centre of gravity of the arms trade in a cleaner direction without being absolutist about it, because being absolutist would mean not winning any contracts outside rich democracies. Or, at least, I assume this is the pragmatic reasoning behind British policy, because it would require a little too much courage to state it publicly.

The other reason that Blair has given for calling off the SFO, and which Brown will have to defend, is almost as ruthlessly pragmatic. It is that we do not want to offend the Saudis. On this, I'm with the critics. I do want to offend the Saudi royal family. I'm with Cherie, who congratulated Kuwait two years ago on granting women the vote, saying: "God knows about Saudi Arabia."

However, I do not go so far as Ken Livingstone, the Mayor of London, who said: "I just long for the day I wake up and find that the Saudi royal family are swinging from lamp-posts." And I suspect that the position is different for journalists, mayors and the wives of prime ministers on the one hand, and for prime ministers on the other.

Maybe it would be fine for Tony Blair or, soon, Gordon Brown, to say: "Expose Saudi corruption and British complicity in it and hang the consequences." It sounds like a noble pose to strike. But Sir Menzies and the cohorts of critics on their high horses do not even accept that there would be consequences. Perhaps it does not matter much to this country whether or not we annoy the Saudi regime. But that seems unlikely.

Blair may have made the wrong judgement in balancing the economic and security benefits of Saudi goodwill against Britain's reputation for propriety. But Brown will make the same judgement; and the fact that there would be costs in offending the Saudis is not a weightless consideration to be waved away from high up on a moral horse.

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