The net tightened on Tony Blair yesterday after one of his senior advisers was arrested on suspicion of perverting the course of justice, by police investigating the alleged "cash for honours" scandal.
Ruth Turner, the director of government relations inside Downing Street, was arrested under caution and bailed without charge after questioning. She could face more interviews.
In a statement released by 10 Downing Street, Ms Turner said: "I absolutely refute any allegations of wrongdoing of any nature whatsoever."
She is the most senior official close to the Prime Minister to be arrested so far. She is the fourth person to be arrested by the Metropolitan Police, amid clear signals that they are determined to pursue evidence to make charges stick in spite of the damage and embarrassment it is causing to the Government.
Ms Turner, who acts as both the "gatekeeper" and "go-between" for the Prime Minister, was interviewed in September about e-mails and documents raising questions about which Labour donors should be placed on a list for honours.
A police statement yesterday made it clear they were unsatisfied and suspicious about the accuracy of the answers she gave.
Her arrest also raised fears in Labour circles that the police have found a "smoking gun" in the trail of e-mails and memos they have been pursuing in Downing Street. The Scotland Yard team, headed by Assistant Commissioner John Yates, questioned Mr Blair at Downing Street before Christmas over the offer of peerages to multi-millionaire businessmen in return for secret loans for the party before the 2005 general election.
The police closely questioned Mr Blair over apparent contradictions in the statements by some of his senior aides. Police have also recently questioned Jonathan Powell, his chief of staff, for a second time and John McTernan, the director of political relations, in Downing Street.
Those arrested by Scotland Yard so far are Lord Levy, a close friends of Mr Blair and high-value fundraiser for the party; Des Smith, a teacher and fundraiser for city academies who boasted to an undercover newspaper reporter that big backers for the schools could get honours; and Sir Christopher Evans, the head of a biotech company, who loaned Labour £1m before the last general election. Mr Blair was closely questioned about an alleged diary entry by Sir Christopher suggesting he had been offered a "K" (knighthood) or a big "P" peerage)'.
Scotland Yard said the arrest of Ms Turner was "in connection with alleged offences under the Honours (Prevention of Abuses) Act 1925 and also on suspicion of perverting the course of justice".
It added that the new development would delay the delivery of a file on the cash-for-honours inquiry to prosecutors, which many in Westminster had been expecting this month.
The Scotland Yard statement said: "She was taken to a London police station where she was interviewed and later bailed to return pending further inquiries.
"As a result of this new development, additional investigation will be required before a final file can be submitted to the Crown Prosecution Service."
The arrest of Ms Turner overshadowed an extraordinary turf war that erupted over the allegations last night between the Attorney General, Lord Goldsmith, and the Lord Chancellor, Lord Falconer of Thoroton.
Lord Goldsmith publicly slapped down Lord Chancellor for his earlier assurances that the Attorney General would not get involved in the Director of Public Prosecutions' decision on whether to prosecute Mr Blair or other senior members of the Government and the Labour Party.
In a letter to a Commons select committee which is to investigate his role, Lord Goldsmith angrily dismissed Lord Falconer's assurances. "I know the Lord Chancellor well understands he was not in a position to give an 'assurance', as you have termed it, as to how I would act," he said.
"No other minister, however distinguished or senior, has the ability to bind the Attorney General in how he exercises his role."
The loyal 'gatekeeper'
* Ruth Turner is an ultra-loyal Blairite who Tony Blair trusts with his secrets. She was plucked from Labour's ruling national executive to work at Downing Street because of a reputation for loyalty.
Ms Turner, 36, was one of the few of his close aides whom Mr Blair told about his plans to step down later this year. She is regarded as a quiet and does not like to be in the spotlight, unlike the film clips being shown yesterday on television of her making a speech at a Labour party conference, which was out of character. Ms Turner was an award-winning "social entrepreneur". In 1992 she helped to set up 'The Big Issue' - a magazine to help the homeless - in the north, and is a founding director of Vision 21, a company specialising in market research and community consultation for the public and voluntary sectors.
She also helped to run the public participation unit at the National Institute for Health and Clinical Excellence. But her role in the 'loans for honours' affair has been shrouded in confusion.
Downing Street said the Prime Minister had full confidence in Ms Turner. "She is still in her job," a spokeswoman said, adding any investigation had to be allowed to run its course.
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