Blair questioned by police on day of 'burying bad news'

Downing Street faced accusations of trying to "bury bad news" by using the release of the report on the death Diana, Princess of Wales, to overshadow a two-hour grilling of the Prime Minister by police as part of the "cash-for-honours" investigation.

Mr Blair became the first serving Prime Minister to be interviewed in a criminal investigation by the Metropolitan Police. But one hour after the unprecedented meeting in N0 10, Lord Stevens published the findings of his inquiry into the princess' death.

The Government also chose yesterday to announce that the Serious Fraud Office was dropping its long-running inquiry into a multi-billion-pound arms deal with Saudi Arabia and the closure of 2,500 post offices in the face of fierce opposition from rural areas.

The shadow Transport Secretary, Chris Grayling, said: "Five years after Labour launched the concept of burying bad news, Mr Blair's spin doctors are back to their old tricks."

In a string of other announcements, the Transport Secretary, Douglas Alexander, published a progress report on the 2003 Aviation White Paper, and proposed the building of four new runways.

The Department for Constitutional Affairs under Lord Falconer of Thoroton announced it was pressing ahead with plans to limit the Freedom of Information Act ­ curtailing rights to access and increasing fees to apply.

The Prime Minister's aides had been negotiating for weeks the timing and the terms of the police interview, and had the Diana report on the No 10 " grid" well in advance of yesterday's interview with John Yates, the Deputy Assistant Commissioner.

Some senior police officers were rumoured to be furious at the apparent attempt by No 10 to take attention away from their questioning of the Prime Minister, which underlined the seriousness and independence of their inquiry.

Mr Blair's aides tried to limit the damage, at first denying there had been an approach by the police and announcing he had been interviewed only after it had taken place. They also refused to answer detailed questions but disclosed he had not been cautioned ­ a clear signal that they believe he will not face charges.

Mr Blair agreed to meet the police shortly after 11am following a regular cabinet meeting, and a few hours before he flew to Brussels for an EU summit. Jack Straw, the Leader of the House, said later it was not mentioned at the Cabinet.

"It was a last-minute thing, the timing was down to the PM's people," a senior Whitehall source said. Mr Blair was quizzed in detail about a list of Labour donors who had been put forward by Mr Blair for honours. In each case, he denied a link between cash and the honours.

The Prime Minister's official spokesman said: "The Prime Minister explained why he nominated each of the individuals and he did so as party leader in respect of the peerages reserved for party supporters as other party leaders do. The honours were not therefore for public service but expressly party peerages given for party services.

"In these circumstances, that fact that they had supported the party financially could not conceivably be a barrier to their nomination."

Mr Blair dodged reporters' questions when he arrived in Brussels for a two-day summit of European leaders. He tried to project a "business as usual" message as he smiled and shook hands with the meeting's chairman, the Finnish Prime Minister Matti Vanhanen.

But the police questioning overshadowed his visit and dominated briefings by British officials about the EU summit.

As Blair aides insisted the Prime Minister was "pretty relaxed" about the police investigation, his official spokesman suggested that Mr Blair would not face further questioning. "I have no reason to believe that there will be any other interviews, but that is a matter for the police, " he said. "There was a judgement made that he did not want a lawyer [present]. He did not feel that he needed a lawyer."

One Blair aide said: "He has been making it clear in private conversations for some time that he was looking forward to having the chance to put his side of the case. The wait has been a bit frustrating but we knew it was likely to be towards the end of the investigation."

However, Downing Street insiders admitted that the police inquiry had turned into a much more serious matter than they had first expected when the Scottish National Party made a formal complaint.

More than 50 witnesses have been questioned, including Patricia Hewitt, the Health Secretary; Jonathan Powell, Mr Blair's chief of staff, and Alan Milburn, who ran Labour's election campaign, with roughly a third of them under caution. Three were questioned under arrest ­ Lord Levy, Labour's fundraiser nicknamed "Lord Cashpoint"; Des Smith, the teacher and fundraiser for city academies, who boasted to an undercover journalist that donations of several millions of pounds were likely to be rewarded with a peerage by the Prime Minister; and Sir Christopher Evans, a biotech millionaire.

Mr Blair was questioned as part of the investigation into a possible breach of the Honours (Prevention of Abuses) Act 1925, which was introduced in the wake of scandal involving Lloyd George to ban the sale of peerages, and under the Political Parties, Elections and Referendums Act 2000, which Mr Blair introduced to clean up British politics.

The interview centred on loans by 12 businessmen totalling nearly £14m, which did not have to be declared under the 2000 Act.

The police are looking at claims by some of the businessmen that they wanted to make donations which had to be declared but were advised to make loans to avoid disclosure. Mr Yates is expected to pass his file to the Crown Prosecution Service in the new year.

The Liberal Democrat chief of staff Norman Lamb said: "For as long as parties are allowed to accept large donations from donors and retain the ability to award seats in the Lords, it will be impossible to restore public confidence in our political system."

How the drama has unfolded

13 APRIL: Des Smith, a headteacher involved in the Government's city academies programme, is arrested and bailed by the police.

12 JULY: Lord Levy, Labour's chief fundraiser, is arrested and bailed by police. He says the arrest powers were used "totally unnecessarily" .

14 JULY: It emerges that two ministers, the Labour donor Lord Sainsbury and the former party chairman Ian McCartney, have been questioned by police.

20 SEPTEMBER: The chief fundraiser Lord Levy is questioned again.

21 SEPTEMBER: Sir Christopher Evans, a leading biotechnology entrepreneur, who lent Labour £1m, is arrested.

29 SEPTEMBER: Ruth Turner, the director of government relations at Downing Street, is questioned.

1 OCTOBER: It is revealed that John McTernan, the director of political operations, has been questioned.

2 OCTOBER: The Tories confirm that four of their donors: Robert Edmiston, Lord Laidlaw, Lord Ashcroft and Johan Eliasch, have been interviewed by police.

23 OCTOBER: Michael Howard, the former Tory leader, is interviewed.

25 OCTOBER: It is reported that Jonathan Powell, Mr Blair's chief of staff, has been interviewed.

29 OCTOBER: It is disclosed that Richard Roscoe, the head of Downing Street's honours unit, has been questioned.

23 NOVEMBER: The Health Secretary Patricia Hewitt is questioned as a witness.

14 DECEMBER: Prime Minister Tony Blair is questioned as a witness.

Other reported interviewees include Matt Carter, the former Labour Party general secretary and Registered Treasurer; Sir Gulam Noon, the chairman and managing director of Noon products; Chai Patel, founder of the Priory clinics; the property tycoon Sir David Garrard, whose peerage nominations were blocked and stockbroker Barry Townsley, whose nomination was withdrawn, were reported to have refused to answer questions directly. Each was said to have been interviewed under caution at their solicitors' offices and limited their answers to written statements.

Geneviève Roberts