How Andersen cosied up to New Labour

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The 1990s saw Arthur Andersen emerge as new Labour's favourite friend in big business at a time when the party was undergoing a revolution in its attitude to the private sector.

From seconded staff to crucial research for its economic policy, the leading accountancy and consultancy firm gave the Opposition the credibility and expertise that it badly needed to attack the Tories.

Patricia Hewitt, the Trade and Industry Secretary, spent three years as head of research at Andersen's consultancy arm, now called Accenture. But the traffic was two-way, as the firm provided staff free of charge to help Gordon Brown in the formulation of economic policy. Geoffrey Robinson, the former paymaster-general, helped bring in Andersen to advise on Labour's plans to levy a £5bn windfall tax on privatised utilities. After a secret meeting at the firm's headquarters off the Strand in London, a deal was struck to employ its best brains to help with the policy.

Andersen was, however, not the consultancy firm of choice of the Conservatives, having been barred from all government projects following its auditing of the DeLorean sports car firm, which collapsed in 1981 with the loss of millions of pounds of taxpayers' money.

Under both the Thatcher and Major administrations, the firm was black-balled pending a court case seeking more than £200m in compensation.

Within months of Labour gaining office, the 12-year ban on allowing Andersen to bid for government contracts had been lifted by the new Attorney General, John Morris. Since the ban was lifted, Andersen has advised on private finance deals and a range of projects including the Millennium Dome.

Downing Street said last night that the ban had been lifted following a review of the case by Crown lawyers ordered by the Tory attorney general, Sir Nicholas Lyell, in late 1996.

The review, which Tony Blair's spokesman said covered "all aspects of the case, not just the lifting of the ban", was completed on 26 March and seen by ministers at the end of April during the election campaign. Mr Morris decided in June to lift the ban.

Andersen had been threatening to move the legal action to the US, increasing the costs, and, on the advice of independent barristers and government lawyers, the court case was settled for £21m, following the mediation of Lord Griffiths, a former law lord.

Mr Blair's spokesman said counsel had made their recommendations before the poll. "It would be a foolish government that didn't take legal advice. People have a right to be considered innocent until proven guilty. If people have the facts, then let's see them."

However, the Tories said minister believed the case was "nowhere near" settlement before the election. Tim Collins, the Shadow Minister for the Cabinet Office, said: "Reports are commissioned all the time by governments, but ministers take the decisions to act on them. The truth remains that after 12 years of legal battle, this Government caved in after six months."