Blair warning on Saudi arms probe

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The Prime Minister was facing demands for a new inquiry into the Al Yamamah deal, signed in the 1980s, amid reports that hundreds of millions of pounds were secretly channelled to a Saudi prince.

The BBC and The Guardian said that more than £1 billion was paid into accounts controlled by the former Saudi ambassador to the US, Prince Bandar bin Sultan, over a period of at least a decade.

The payments were said to have been made by BAE Systems - the UK's biggest arms manufacturer - with the full knowledge of the Ministry of Defence.

But while Mr Blair - attending the G8 summit in Germany - strongly defended the decision last year to drop a Serious Fraud Office corruption inquiry into the deal, Gordon Brown signalled his support for new controls on arms sales.

Speaking last night at a Labour leadership hustings in London, the Chancellor - who takes over later this month as Prime Minister - said: "I hope we will be able to do more on arms sales in the next period."

Labour MP Roger Berry, who chairs the Commons Quadripartite Committee which covers arms deals, said the latest allegations about the deal must now be properly investigated.

He said that if there was evidence of bribery or corruption in arms deals since new laws were introduced in 2001, then it would be a criminal offence.

"These matters need to be properly investigated," he told BBC Radio 4's Today programme. "It's bad for British business, apart from anything else, if allegations of bribery popping around aren't investigated."

Liberal Democrat leader Sir Menzies Campbell said Tony Blair had accepted responsibility for the end of the SFO inquiry. "I think that we need some sort of statement from the Prime Minister on this," he said.