Melissa Kite says that the shadow chancellor should have known better than to cross the most brutal spin-doctor in Westminster, or flout the conventions of the super-rich. But we should not be distracted from the Business Secretary’s true role in this saga
If George Osborne survives the spectacular fallout of his now notorious Corfu adventure he may want to review the way he spends his holidays. If a bespoke travel agent arranged his recent sojourn he should be asking for his money back, because sunshine breaks don’t come much more disastrous than this one. Not since John Fowles’s character Nicholas in The Magus has a man stepped on to a Greek island and got himself into such a surreal muddle.
Admittedly the ingredients for intrigue were already in place when Mr Osborne arrived among the olive groves. A Russian oligarch, the scion of a banking dynasty, the most feared spin-doctor ever to prowl Downing Street… something should have told Mr Osborne that this holiday was going to be trouble. How he must now wish he’d sat on the beach on his own with a good book and given Nathaniel Rothschild and his friends Oleg Deripaska and Peter Mandelson a wide berth. Instead, Mr Osborne somehow managed to enter a social whirl with all three which has culminated in an almighty clash of conflicting loyalties and a blaze of sleaze allegations which threatens to ruin his reputation.
To recap: Friday 22 August, Osborne goes aboard Deripaska’s yacht for tea at the invitation of his old university chum Nat Rothschild, who is a friend and business adviser to the Russian, along with Mandelson.
Saturday 23 August, Osborne enjoys dinner in a taverna with Rothschild and Mandelson during Elisabeth Murdoch’s 40th birthday celebrations.
Sunday 24 August, Osborne and his family leave their rented house and go to stay at the Rothschild villa. On the terrace that evening they have drinks with Andrew Feldman, Tory chief executive, who was also staying on the island. (Was anyone influential not holidaying on Corfu this August?)
The shadow chancellor’s reasons for cosying up to Mandelson at the taverna are understandable enough. The opportunity to swap gossip with the master of spin must have seemed enticing. But when details of their private conversation, the ‘pure poison’ the new Business Secretary had spoken about Gordon Brown, then emerged in the national press it started to look like Mr Osborne was playing a dangerous game. So Mr Mandelson hissed a warning that he might just reveal a few things Mr Osborne told him over the taramasalata. And here the cautious man might have withdrawn from the spinning war with the Prince of Darkness and resolved to tell his grandchildren in years to come how he survived to fight another day.
But not Mr Osborne, it seems. Because it then emerged in the Sunday Times that the former EU trade commissioner stayed on Mr Deripaska’s yacht. And at this point it starts to look very much like Mr Osborne has a death wish. Someone should have reminded the Tatton MP — whose constituency, the former seat of Neil Hamilton and Martin Bell, would appear to be jinxed by the label of sleaze — that so far as is known, no one has ever crossed press briefings with Peter Mandelson and survived to tell the tale. With the new Business Secretary freshly back on the scene after years starved of the oxygen of Westminster intrigue, what fool would poke the beast now?
The man’s sheer Rasputin-like powers of recovery should be warning enough to anyone thinking of tangling with him. From the Geoffrey Robinson home loan to the Hinduja passport accusations, he keeps on getting back up no matter how final the assassination blow appears. Like Kathy Bates in Stephen King’s Misery being smashed in the face with an iron, he just won’t die. It can be no coincidence that his return to government after a second resurrection has brought with it the most devastating crisis to engulf the leadership of the Tory party since Mr Cameron took over.
Like the rookie gangster awaiting Mafia justice, Mr Osborne had to wait a few weeks before the return hit. ‘The Tories, the oligarch and a £50,000 question’, said the Times headline on Tuesday, as Mr Rothschild revealed in a letter to the paper that Mr Osborne also spent time on the Russian yacht, the Queen K. His letter oozed barely concealed contempt for his old university friend, with whom he posed for a Bullingdon Club group photo in 1992. Mr Osborne, he said, ‘found the opportunity of meeting with Mr Deripaska so good that he invited the Conservatives’ fundraiser Andrew Feldman, who was staying nearby, to accompany him on to Mr Deripaska’s boat to solicit a donation’. He claimed that Mr Osborne tried to arrange for the illegal foreign donation to be channelled through the Russian’s British company Leyland Daf.
In Bullingdon terms, this is the equivalent of putting Mr Osborne’s head down the toilet and flushing the chain.
As one Tory insider said: ‘George hasn’t actually done anything apart from wanting to rub shoulders with people with big yachts. If you are sitting there drinking someone’s Cristal champagne and they offer you money, you don’t say “no thanks, matey”. But when he and Feldman got off the yacht they probably turned to each other and said “I don’t think so”. It was £50,000 for goodness sake. We have £50,000 donations coming out of our ears. We’ve so many people giving us £50,000 all we give them back is a plastic replica of Number 10.’
The Rothschild intervention prompted furious claim and counter-claim. The Conservative party all but accused the respected hedge-fund manager of lying, with a statement calling his allegations ‘completely untrue’. Mr Deripaska had offered the donation at a later date and the party had refused, they said.
The next day Mr Rothschild hit back, saying he had a witness to corroborate his version of events. Mr Osborne denied ‘any new recollections’ from his former friend and chief tormentor and put out a 900-word statement detailing his holiday.
But why on earth should Mr Rothschild, who has been a friend of Mr Osborne since they were at Oxford together and has been involved in fundraising for the Tories, turn on him in this way?
Friends of the financier, who can be fiery, said he was ‘furious’ with Mr Osborne for using him as a political pawn. Having invited him to a private gathering, he felt betrayed that Mr Osborne had apparently leaked details about his house party to the press in order to score a hit against Labour. In spilling the beans, Mr Osborne had breached the code of the international billionaires’ club and displayed extreme rudeness, friends of Mr Rothschild said. ‘George doesn’t play in that league. He was granted honorary membership of the club for a few days and he blew it.’ If this is true, it is ironic that Mr Osborne, the son of a baronet and a debutante, should harm himself so badly by breaking social codes. One could argue that he broke another code too. He violated the conventions governing conversations between politicians of opposing sides when they swap inside information about the trade, as rival MPs often do.
But the impression remains that there must be some other reason why Mr Rothschild reacted in the way he did. Personal animosity can run deep between boyhood friends. It is never easy to see an old contemporary in a position of power. Maybe Mr Rothschild contemplates his old Bullingdon chum as Chancellor of the Exchequer in a few years time and cannot quite see it. Possibly he remembers a curly-haired geek in a dodgy waistcoat cavorting around Oxford and thinks: Nah! Or perhaps Mr Rothschild, an influential figure in the banking world who sits on advisory panels, has good reason to support his contacts in the Labour party rather than stand by his Tory friends two years f
rom an election. Rumours abound that he acted after a phone call from Tony Blair urging him to intervene on Mandelson’s behalf.
Personal rivalries aside, the real Greek tragedy of it all is that the Tories should right now have been getting stuck into the scandal of the links between Gordon Brown’s new Business Secretary and Russia’s richest man. This is a complicated web. On the surface are allegations surrounding Mandelson’s decision to remove a punitive 14.9 per cent import tariff on aluminium foil damaging Deripaska’s aluminium company Rusal. As EU Trade Commissioner he signed off a deal in December 2005 to remove it. When asked about his links with the Russian this week, Mandelson’s press officer in Brussels only admitted to meetings in 2006 and 2007 and said there could therefore have been no conflict of interest in the decision to drop the tariff. But it has since emerged that Mandelson had dinner with Deripaska in Moscow in January 2005, along with Rothschild. Some insiders who suspect even murkier possibilities say this is a red herring. Although any discussion of his talent for media manipulation is apt to get hysterical, they claim Mandelson may have encouraged such stories because he knows he can deny them, and provide a decoy to the really damaging claims — a classic New Labour trick. What Mandy really does not want people asking questions about, his critics claim, is a saga involving two companies that asked him to help them in a legal dispute with Mr Deripaska over control of a Russian insurance firm. It is said that businessmen in Italy and the Czech Republic asked the EU Trade Commissioner for help over the sale of 38.46 per cent of Ingosstrakh, Russia’s second-biggest insurance company, which is majority-owned by Mr Deripaska’s company Basic Element.
According to reports, the deal was worth $1 billion and PPF Investments, a Czech company, went in with Generali, an Italian corporation, to purchase the minority shareholding. However, it is claimed, Mr Deripaska was unhappy. In October last year Ingosstrakh held a special meeting at which majority shareholders voted to reduce the stake held by the European companies to less than 10 per cent. The Czechs and Italians allege they knew nothing of the meeting at which the shares had been reduced in value and insisted that they had been defrauded. Their claim was later upheld by a Moscow court. But Mr Deripaska, a close ally of Russia’s Prime Minister Vladimir Putin, appealed to a Russian court which found in the billionaire’s favour.
PPF Investments, which is headed by self-made Czech billionaire Petr Kellner, and Generali took their case to Lord Mandelson, supported by a number of MEPs who claimed it was a clear case of discrimination against European investors. Lord Mandelson’s spokesman insisted that, contrary to reports, he had acted. ‘He raised it with both the Russian finance minister and trade minister in June,’ he said. ‘This has been completely distorted.’
However, executives from the companies were still disturbed to learn that Lord Mandelson had been a guest of Mr Deripaska aboard the Queen K. They remain to be convinced that Lord Mandelson has given a full account of his contacts with Mr Deripaska, a ruthless operator and a veteran of acrimonious disputes who is rumoured to have survived an assassination attempt on a mountain road involving a grenade launcher.
When the Osborne angle exploded, the Tories were about to put down parliamentary questions asking for full disclosure of the links. But for now, gone from the papers is any discussion of what Mandelson may or may not have done. When he appeared before a Commons select committee this week there was no mention of the words Corfu or yacht. When asked about recent press attention, he said: ‘No complaint from me!’ with a Cheshire cat grin on his face. Meanwhile, outside Tory HQ in Millbank, the shadow chancellor was floundering around trying to fend off forensic questioning.
Whatever the rights and wrongs of the funding allegations, what is certain is that Mr Osborne has clashed with a political titan and come out looking like an amateur. That impression will be hard to shift.
Melissa Kite is deputy political editor of the Sunday Telegraph.
This article first appeared in the print edition of The Spectator magazine, dated October 25, 2008