How Britain works: follow the money

The Defence Secretary's fatal mistake was to bring unwelcome publicity to a group of super-rich men

Brian Brady,Matt Chorley,Jane Merrick
Sunday 16 October 2011 00:00 BST

At the end of a long and champagne-fuelled gathering at the Conservative Party conference this month, Liam Fox, his wife, Jesme Baird, and a tall, thick-set man crowded with others into a lift on the 23rd floor of the Manchester Hilton Hotel. The man – Adam Werritty – pressed the ground-floor button. The small group was in jolly mood: Mr Fox had just received rapturous applause for reminding the partygoers – Tory donors, right-wing members of the 1922 Committee and invitees of the Conservative Home website – that he was an "unreconstructed, free-marketeer, Unionist, Eurosceptic, Atlanticist". In short, he was the heir to the Thatcherite crown.

Circles of influence: download full graphic (185k)

Or was until the events of the past 10 days. It is a cruel irony that it was an ally of Baroness Thatcher, the PR chief Lord Bell, who played a key part in the downfall of the Defence Secretary. The qualities that had commanded the loyalty of the Tory right had helped Mr Fox to cling to his job last week; in his refusal to budge – and his aggressive countering of attacks from all quarters – he showed all the stoicism of the zealot. Moreover, he remained secure in the belief that David Cameron showed neither the inclination nor the political clout to dismiss one of his most fearsome colleagues and one-time rival for the Tory leadership.

But the fatal problem for Mr Fox was that his misadventures had discomforted a group of individuals who ultimately proved even more influential that the Prime Minister. The well-connected and super-rich party donors, the lobbyists and defence contractors hauled into the open as the Werritty story developed prefer to do their business out of the spotlight; when they moved decisively to protect their privacy, Mr Fox had no choice but to leave the stage.

The story of his final days is as much an education in how the British Establishment works as it is an illustration of how the Conservative Party manages its internal affairs. Henry Macrory's arrival in No 10 on Thursday was a bad sign. Downing Street staff said that the last time the Tories' deputy political director was so conspicuous was in the hours before Andy Coulson quit in January. In the dimly lit corners of Downing Street, senior advisers whispered that journalists were "following the money".

"We knew then Fox's days were numbered," said a No 10 source. And as the first editions of Friday's papers began to appear, it was clear that the media had followed one very clear cash trail. This was not what Mr Cameron wanted. At least not yet. While some around the Prime Minister were convinced Mr Fox should have "done a [David] Laws" and resigned as soon as the scandal broke, Mr Cameron wanted to bide his time. If Mr Fox's cabinet career was shot, it had to be "fatal", said a No 10 aide. "The last thing we wanted was him wounded and angry on the back benches."

Mr Cameron calculated early on that he would make no decision on Mr Fox's future until next week, fearing a clean bill of health would be undermined by a further round of allegations in the Sunday papers. It was the Friday papers that did for him. The tipping point was the revelation that Mr Werritty's extensive travels around the world were being bankrolled by a series of wealthy figures who had paid money into the previously unheralded company Pargav Ltd. It was a crushing blow for Mr Fox's chances of survival, as the unexpurgated details of Pargav's accounts immediately put men who would otherwise be his allies into the public domain.

Jon Moulton, a venture capital investor who has donated more than £450,000 to the Tories – including £150,000 to Mr Fox himself – protested that he had believed his £35,000 contribution to Pargav was towards a "security policy analysis research organisation". He was "not very happy" to discover that it had helped fund Mr Werritty's travels. Worse, Mr Moulton revealed that it was Mr Fox who had asked him to make the donation – raising questions about Mr Fox's claims that he had not known about Mr Werritty's activities.

The Finnish billionaire Chaim "Poju" Zabludowicz, who has given the Tories more than £100,000, was also named as a Pargav donor, via his company, Tamares Real Estate. Mr Zabludowicz shares Mr Fox's pro-Israel opinions and chairs the pro-Israel lobbying group Bicom. He was yesterday said to be "extremely disappointed" to discover the truth about how his money was used.

Michael Lewis, who gave £30,000 through his firm Oceana Investments, has also contributed to the Tories and to Mr Fox's now-defunct Atlantic Bridge charity, set up to promote the US-UK "special relationship". Most significant of all was the involvement of Michael Hintze, the billionaire fund manager who has given the Tories more than £1.4m – including individual donations to Mr Fox, George Osborne and Boris Johnson. He had already been brought under scrutiny after it was revealed that Mr Werritty worked from a desk at the offices of Mr Hintze's hedge fund, CQS – and that Mr Hintze had donated £29,000 to Atlantic Bridge. But it was subsequently revealed that CQS's charity adviser, Oliver Hylton, was the sole director of Pargav.

The complex web of connections, regardless of the Government's intentions, ultimately pulled Mr Fox towards his endgame. Mr Hintze's PR man, the arch-Thatcherite Lord Bell, was called in as the fixer for a story that was running out of control and threatening serious damage to more than just the Defence Secretary and his best man. Earlier in the week, Lord Bell had confirmed dealings with Mr Werritty while his public relations agency Bell Pottinger was working for the Sri Lankan government. While he insisted that Mr Fox was "a friend of 30 years", keeping the minister in his job was not Lord Bell's top priority. Mr Hintze was keen to make it clear that he had not bankrolled Mr Werritty's first-class travel and luxury accommodation, and the Pargav revelations, which were published in The Times, conclusively proved his case. Lord Bell has now confirmed that the leak was an orchestrated operation. "Oliver Hylton offered information relating to Pargav and this has been reported," he told the Daily Mail.

The bank statements detailed exactly who had funded Pargav, and the collateral damage proved fatal for Mr Fox's ministerial career. Yet it had all seemed so different during his bombastic performance in the Commons on Monday. After Jim Murphy, Labour's defence spokesman, recited the numerous sub-clauses of the ministerial code that appeared to have been breached, Mr Fox responded flippantly by saying he was not sure if Mr Murphy had asked any questions, going on to dismiss a jibe from the Labour stalwart Dennis Skinner.

This was not the performance of someone who thought he was going down. And his mates rallied round: 20 in total spoke in the Commons to support him. Mr Fox is an assiduous networker. One Tory MP describes him as "clubbable, a nice guy". A minister remarks that he is more likely to be found in the Strangers' bar "than the rest of the Cabinet put together". Another adds: "He's the kind of man who would leave a bar at 3am and then make a point of being at a breakfast meeting looking fresh as a daisy."

But as the week went on and the allegations mounted, the number of Tory MPs willing to speak up for Mr Fox dwindled. They hoped something would turn up to absolve him, because they liked him. When they heard him challenge "those who have genuine allegations of wrongdoing to ... bring them into the public domain", they thought he was calling their bluff. In the end what turned up was more bad news.

The Prime Minister remained an impassive observer. Fearing recriminations if he was seen to move too quickly against Mr Fox, he sat back and let events unfold. Mr Fox has spent his political life as an outsider, running a freelance foreign policy operation, wooing the neo-cons, paying more interest to events across the Atlantic. He believed Mr Cameron was powerless to sack him. He was right. It was his other life – and other forces – that did for him in the end.

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