The whistleblower who exposed a key part of the City Hall scandal is to sue Ken Livingstone for libel, the Evening Standard can reveal.

The move comes after the Mayor claimed on BBC radio that Brenda Stern was sacked for bullying her staff.

Ms Stern, a former London Development Agency manager, was forced from her £70,000-a-year job after she complained about serious irregularities in a project run by a friend of the Mayor's equality adviser Lee Jasper.

A complaint of bullying was made against her but in a letter seen by the Standard, LDA chief executive Manny Lewis says the allegation was investigated and was "not founded".

But speaking on BBC Radio 4's Today, Mr Livingstone described Ms Stern as a "very embittered former member of staff we had to get rid of after complaints she was intimidatory to the staff working for her, and the entire senior management team said it was impossible to work with her".

Ms Stern said today: "One of the Mayor's most unattractive characteristics is the way he responds to any legitimate question with personal abuse. What he said about me to six million listeners was completely untrue, and I have that in writing from his own LDA chief executive.

"I am not a political opponent who can respond in kind. I am an ordinary member of the public who has no means to defend her reputation from this bullying other than the courts. I will not be intimidated into silence."

The Mayor's office hit back, threatening that if Ms Stern sued, the GLA would investigate "other matters" apart from her stint at the LDA, including her past life and previous employment.

As criticism of Mr Livingstone has mounted, he and his supporters have made personal attacks on their critics, including the Standard, which has been accused of "racism" and of conducting a "lynching" of Mr Jasper.

Ms Stern was programme manager for the LDA's Diversity Dividend, an interactive website allowing companies to assess their diversity performance. Before she arrived, the £295,000 contract for the website was given to a company called Diversity International, run by Joel O'Loughlin, a longstanding friend of Mr Jasper's, even though DI had no expertise in computers and was based in Liverpool.

The website never operated properly. Mr O'Loughlin deceived the LDA about his company's financial health and overcharged it by more than £50,000. In emails and letters leaked to the Standard Mr Lewis threatened in writing to sack Mr O'Loughlin and claw back the money, but within days performed a 180-degree turn following an intervention by Mr Jasper.

After Mr Jasper became involved, the threats to sack Mr O'Loughlin were withdrawn and he was offered a further £250,000 and a lucrative consultancy. Ms Stern was forced out after she voiced strong internal objections to the volte-face and the deal, calling it "extortionate", "outrageous" and "against the public interest". Mr Jasper had the final say on her fate.

Mr Livingstone also claimed on the Today programme: "The moment that management [of DI] was shown to be defective, we made certain that the company was wound up. It was brought much more in-house and is now thriving." In fact, DI was wound up by Mr O'Loughlin in a bid to keep his grant, and the Diversity Dividend website is now defunct.

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