Dame Shirley strikes a deal - but still protests innocence

In May 1990, when rioters were out in the city streets protesting against the poll tax, the Conservative Party was looking with dread towards the local election results, in which they foresaw that hundreds of their councillors across the country would lose their seats to Labour.

In May 1990, when rioters were out in the city streets protesting against the poll tax, the Conservative Party was looking with dread towards the local election results, in which they foresaw that hundreds of their councillors across the country would lose their seats to Labour.

That is what happened almost everywhere, but not in Westminster, in London. The Westminster Tories not only held on to power, as they have done ever since; they even increased their majority.

It was an extraordinary achievement by the council's extraordinary leader, Lady Shirley Porter, the multi-millionaire daughter of the founder of the Tesco supermarket chain. To no one's surprise, Lady Porter was soon marked out as Margaret Thatcher's favourite municipal boss. John Major awarded her the title of Dame for "services to local government". She is Lady Porter through her marriage to Sir John Porter, and Dame Shirley in her own right.

Only later did a group of Westminster council taxpayers and Labour councillors put in a formal complaint, alleging that Lady Porter was not the dedicated public servant she purported to be. She was a ruthless, power-driven politician who cheated to get her way, they claimed.

The central allegation that brought her down was "gerrymandering" - an offence rarely encountered on the British mainland. John Magill, the district auditor, unearthed a huge quantity of documents suggesting that she and her cohorts had spent three years clearing certain key electoral wards of council tenants and attracting owner-occupiers, who were more likely to vote Conservative.

Dame Shirley could not be prosecuted under the law as it was written at the time. An offence of corruption in public office is currently being planned. However, the district auditor was required by law to calculate how much money her activities had cost the local community, and to recover the money, if possible, from those involved.

In Mr Magill's original findings, 10 councillors and officers were implicated, and were told they faced personal surcharges amounting to £25m. Over the years, the amount increased while the number of people liable to pay decreased.

One of the original 10, Barry Legg, was a Tory MP for five years until he lost his seat in 1997. He made a brief reappearance in national politics last year, when Iain Duncan Smith appointed him chief executive of the Conservative Party. But the manner of his appointment provoked such protest that he was sacked.

By then, Mr Legg and others had been cleared by Mr Magill of knowingly being involved in the gerrymandering scandal, and the council's efforts to recover the money it was owed concentrated exclusively on Shirley Porter, who had taken refuge in Israel.

In 2002, she caused astonishment by claiming that she had a total wealth of only £300,000, although her father, Sir John Cohen, was the founder of Tesco. Her husband, Sir Leslie Porter, was chairman of Tesco.

However, a boardroom battle between her son, John Porter, and his former business partner revealed where her fortune had been hidden. Westminster council managed to freeze £34m worth of assets, much of which was held in family trust funds in the British Virgin Islands.

Even if she parts with the £12m she has agreed to pay, while still protesting her innocence, some of her old opponents consider her lucky. Peter Bradley, a former Westminster councillor who is now a Labour MP, suggested that every felon in the country will raise a glass to this new idea that an offender negotiates her own sentence.

But the deal, brokered by the Audit Commission, could save Westminster council millions of pounds in legal fees that it would have cost to pursue Lady Porter through overseas courts. A council spokesman said that the surplus would be invested in affordable housing and council housing - in other words, in looking after the very people whom Lady Porter tried to drive out.