LobbyGate: "There are 17 people that count. To say that I am intimate with every one of them is the understatement of the century"


Sunday, July 5, 1998

by Gregory Palast - The Observer UK

It was the morning of 8 June. I was surprised by a fax I had received overnight, a copy of the Trade and Industry Select Committee Report on energy policy. And why was it surprising? Because the report had not yet been released. It was due to be published the following day.

There was a cover note, a couple of hand-written lines to me from Karl Milner of lobbying company GJW Government Relations. Until last year's general election, Milner had handled internal communications for Gordon Brown, then Shadow Chancellor.

Milner wrote: "Thought you may be interested." Indeed I was. In May, The Observer had received a tip that certain lobbyists were offering clients advance drafts of confidential government papers. Was it true? That's what we were trying to establish. Milner's fax suggested that a company on certain lobbyists' client lists would be offered an early view of documents coming from Whitehall and/or Westminster.

We first contacted Milner saying we worked for two American companies seeking "an influential presence" in Britain. He recognised me as an Observer contributor, but I stressed I was making the approach on behalf of my clients. Milner faxed the advance copy of the report to my offices at Union Associates in New York, a firm known for its investigations of corporate corruption.

I called Milner. Where had his copy of the document come from? Was he was simply breaking an embargo? Were such reports routinely issued in advance of official publication? Milner assured me otherwise. His special access to policy papers for his clients was standard stuff. "We have many friends in government," he said. "They like to run things past us some days in advance, to get our view, to let them know if they have anything to be worried about, maybe suggest some changes." In this case, the report contained recommendations which, if implemented, would be crucial for one of his clients, a US energy company.

The managing director of Milner's firm is Andrew Gifford, chairman of the newly-formed Association of Professional Political Consultants, whose voluntary code of conduct was praised by the Nolan Committee. There is no evidence to suggest Gifford knows that any of his employees are offering leaked documents.

The experience with Milner was by no means a one-off. Take our experience with Derek Draper, top lobbyist with GPC Market Access and former chief aide to Peter Mandelson. It was 11 June, and I was trying to wind up a phone call with Draper. He was gleeful. That day, the Chancellor Gordon Brown had announced the Government's spending plans.

"I'm very excited," said Draper, "very excited." Why? "Gordon Brown put the cap on total spending at 2.75 per cent, not 2.5 per cent, like everyone expected," he gushed. "And we said so! We said so last week!"

This one-quarter percentage point difference may seem tiny. But in the hands of securities traders and arbitrageurs, such information is like gold-dust.

And indeed, a week earlier, according to Draper, he had given the correct number to his client Salomon Smith Barney, the US investment banking giant. I complimented Draper on his firm's forecasting work. He responded: "No, I'm afraid it's inside information... If they (Salomon) acted on it, they'd have made a fortune."

Salomon was later contacted by The Observer but declined to comment. There is no suggestion that the bank solicited any inside information, and certainly none that the bank acted upon any material it may have received.

Indeed, there is no suggestion that any of the clients of lobbyists we contacted asked or paid for inside information.

During our contacts with Draper, he consistently maintained that he had special access to the Treasury and Downing Street.

We asked what he could deliver for our money. Could he help find a seat on one of the Government's Task Forces? Draper said yes. His firm had pushed for the appointment of David Varney, chief executive of BG (part of the old British Gas), to the Government's Welfare to Work Task Force, he said. Draper emphasised that winning this coveted spot at the elbow of the Chancellor was an enormous achievement for a company once known in Labour circles as "the Fat Cats headed by Cedric the Pig" - an unflattering reference to former British Gas chief executive Cedric Brown.

A spokeswoman for BG said that the invitation to head the London Welfare to Work Task Force had come directly from government; BG had not asked GPC to help secure a place.

Draper assured me that, if we wanted access to government, "I can have tea with Geoffrey Robinson (the Paymaster-General), I can get into Ed Balls (the Chancellor's economic adviser)." But of course, that would be available only to a client paying the lobbyists' fees.

Our third approach was to Lawson Lucas Mendelsohn, a firm less than one year old yet one of the hottest lobby groups in town.

The firm's name stands for the initials of its three founders,

Neal Lawson, who advised Tony Blair on campaign strategy before the election;

Ben Lucas, who conducted Blair's political briefings; and

Jon Mendelsohn who handled the future Prime Minister's contacts with business.

Partner Ben Lucas told us that he knows what government will do because, "we know how they think". But if he is to be believed, this amounts to more than mere telepathy. He provided a vivid illustration.

Lucas said he knew, for example, that on 11 June, Gordon Brown would announce the creation of a new housing inspectorate. How come? Because he had spoken to insiders who knew the contents of the speech before it was delivered, he told us. Lucas then delivered the information to an LLM client ahead of the speech and advised them on ways to capitalise it.

Also, like his competitor Draper, Lucas claimed he had several days' notice of details in the public spending announcement. Lucas offered other examples of "intelligence which in market terms would be worth a lot of money".

What could we obtain for our monthly retainer? LLM's Lawson trumped GPC's tea with Geoffrey Robinson by offering, if needed, to "reach anyone. We can go to Gordon Brown if we have to".

Lawson explained how LLM plays on what they call politics without leadership. The name of the game was "non-ideologically-poisoned decision-making".

In a milieu in which a lack of conviction is deemed an asset, with no fixed star of principles by which to steer, policy is susceptible to the last piece of lobbying. "The Labour Government is always of two minds; it operates in a kind of schizophrenia," he said. "On big issues especially, they don't know what they are thinking. Blair himself doesn't always know what he is thinking."

By this stage in The Observer exercise, Draper was aware that he had competitors for our business. He was determined to display his prowess at opening the doors to power.

"I took the chief executive of the House Builders' Federation in to see Geoff Norris the other day... in the Downing Street dining room," he said. "It's not difficult for me to take people into these people." (No one from the HBF was available this weekend to say whether Draper had helped.)

Just how much should we believe? We suggested that merely dining with Ministers was hardly enough to justify Draper's fees. He then offered a story which - in his version - was certain to leave an impression. GPC's client PowerGen has long hungered to buy a regional electricity company (REC), but even Tory trade secretary Ian Lang had blocked the idea. Lang's successor at the Department of Trade and Industry, Margaret Beckett, had already challenged such competition-choking tie-ups.

Draper now told me how he'd steered the chairman of PowerGen, Ed Wallis, around Beckett and brought him directly into the Treasury to meet officials there. Draper claimed government rejection of a PowerGen/REC merger "will not happen again".

The key question, of course, was whether Draper really had lined up a PowerGen meeting at the Treasury? Or was this merely braggadocio in support of his sales pitch?

PowerGen insiders say GPC is used for "political counselling and intelligence gathering". But they play down Draper's role and strenuously deny any deal with government over a merger.

I told Draper my own clients, representing US oil shippers and power plant builders, were seeking exemptions from pollution restrictions.

Draper promised that if we employed him, he would go straight "to Number 10 (to) one of my best friends, Liz Lloyd," whom Blair put in charge of environment at the Downing Street Public Policy Unit.

Why not take us to the Minister of the Environment? Draper responded with an introduction to the ways of what he calls "Policy World - the little world of business people and politicians." A good lobbyist not only opens doors; he steers his clients away from those outside this charmed circle.

"There is an Environment Minister, Michael Meacher," said Draper. He's very weak and basically he's irrelevant and nobody should have to take him into account. To be honest with you, he's a nobody going nowhere, so I wouldn't particularly sort him out. I don't think he'll be in the job much longer.

"Then the DTI obviously matter, but they're very weak, as people perceive Margaret Beckett to be useless and perceive John Battle to be pretty useless. So if you wanted to change the Government's approach, quite frankly, you don't want to advocate to someone in the DTI."

Interestingly, Draper advised against currying favour with Labour through political donations, but he did say he could arrange sponsorship of a Labour event.

Not all lobbyists we approached sailed as close to wind as LLM, GPC and GJW. Take Shandwick Public Affairs. Its managing director Colin Byrne, formerly Blair's press aide, is more reserved than many of his rivals and less given to boasting. Byrne never offered a leaked document, never tried to sell lunch at Downing Street.

We ask Draper for proof of his claims

On Monday 23 June, our investigation moved to the Sanctuary building near Westminster Abbey. Within this courtyard, at Number 7, GPC's Derek Draper guided us through the peculiarities of British democracy. "There are 17 people who count," Draper told us. "And to say I am intimate with every one of them is the understatement of the century."

In a forthcoming edition of the Sunday Telegraph, Draper will write a 2,000-word profile of Ed Balls. (Draper told us that he has given Balls editorial control and the Telegraph is none the wiser.)

At this stage of the investigation, I had a "business partner," Mark Swedlund. He interrogated Draper. (Swedlund is a US businessman who agreed to help The Observer in its London meetings.)

We needed proof of Draper's insider bona fides. Draper rose to the challenge, literally. He stood up from his chair, took a pager from his belt and, holding it up, read off one phone message after another - nearly two dozen in all - from the powerful and near-to-power. "Ed Miliband - call me; Dave Miliband - please call; Paul Hackett... that's (John) Prescott's office ... " There were several messages from Liz Lloyd of the Downing Street Policy Unit, Balls from the Treasury and others. Draper was in cheery mood. His clients at the House Builders" Federation would be happy: Blair's advisor Geoff Norris was again looking at plans to use several green belt areas for housing - "just a bloody bunch of mud tracts at the edge of town," as Draper described the disputed land

Our next stop was Soho. There, in the trendy loft offices of LLM lobbyists Ben Lucas and Jon Mendelsohn, we endured a mind-numbing two-hour lecture on the Third Way, "analytically-driven evidence-based decision-making". We were confronted by a solid wall of New Labour-speak. But it had a purpose.

Lucas and Mendelsohn's were introducing us to a world in which message matters more than content. For their fee of between £5,000 and £20,000 per month, the duo would instruct us in the political grammar of the World of Tony Blair.

We needed LLM's help in defeating environmental restrictions, we said. Mendelsohn advised us to recast our plan for new, polluting power stations into something that sounded Earth-friendly. "Tony is very anxious to be seen as green," he said. "Everything has to be couched in environmental language - even if it's slightly Orwellian."

LLM clients are expected to "reshape their core corporate culture", to get in line with New Labour's vision. He cited the "cultural reshaping" of one LLM client, Tesco which recently pledged £12 million to Peter Mandelson's Millennium Dome project.

Once we had changed our culture, exactly how could LLM help us get a law changed? Lucas replied: "This government likes to do deals."

Jon Mendelsohn, aloof and intellectual, came across as the Big Idea man with a deep understanding of Blair's obsession with corporate and media contacts.

"Labour's super-majority in Parliament means the only countervailing force is the media and business community," he said. "So when the economy turns soft, as it naturally must, we will make certain they stay with us. If we have business and media, the people will come along."

It was not difficult for LLM to find places for their clients on official task forces, they said. Rather, LLM's challenge was to procure a steady supply of executives to feed Labour's appetite for industry contacts. Clients had begun to complain about the number of task forces, panels and quango meetings at which Labour sought their presence.

Mendelsohn concluded: "Lobbying" is a misnomer. The fact that you know someone is irrelevant. Friendship accounts for nothing." But just in case friendship did count, Lucas reeled off a list of the firm's allies: "Jack Straw asked us to set up... Gordon Brown asked us to host..." And so on.

The following evening, GPC held its annual bash at the Banqueting House in Whitehall. The firm's 200 guests nibbled canap?�s and drank champagne. Peers, MPs and Downing Street officials mixed with the nation's business élite. It was Derek Draper's pager come to life.

At the centre of this swirl, Draper held court and offered us free samples of his connections, introducing us to government luminaries.

We asked Draper to point out someone who could vouch for his influence with government. He reached out, seeming to pull at random from the crowd the nearest figure. He grabbed a short, balding man with sweat beaded on his forehead. Draper told the official we were potential GPC clients, then walked off. We had just been introduced to Roger Liddle.

Liddle is a key man in government, in charge of European affairs for Blair's Policy Unit at 10 Downing Street.

After some chat about our electricity generators, we asked Liddle if Draper was as influential as he claimed. Liddle leaned forward. "There is a Circle," he confided. (Liddle was now whispering.) "There is a Circle and Derek is part of The Circle. And anyone who says he isn't is An Enemy." He reassured us that "Derek knows all the right people." Could Draper introduce us to policy-makers who might be helpful? In response, Liddle handed us a card with his Downing Street and home phone numbers. He then made an extraordinary offer. He said to us:

"Whenever you are ready, just tell me what you want, who you want to meet and Derek and I will make the call for you."

Derek and I. It was a strange locution. Swedlund remarked that Liddle sounded more as if he worked for Draper's outfit than for the Government.

It was only the following day that we learned that Liddle had previously been exactly that: until the election, he had been managing director of Prima Europe, the firm Draper worked for. However when Liddle took up his Downing Street post, he had placed his 25 per cent stake in Prima into a blind trust in line with Cabinet office rules. Moreover in February this year, Canadian company GPC bought Prima for a figure thought to be £2 million, and Liddle's already arms length financial interest was sold.

A further day passed. We were with Draper again. "What I really am," he said, "is a commentator-fixer. Your Mayor Daley has nothing on me." We were sitting in the Reform Club in Pall Mall. Draper sipped his champagne and sank into a red leather armchair.

He tossed a copy of Progress magazine on the table. "I own it," he said of the Blairite journal, "100 per cent of it." The funds to launch the magazine came from an unnamed "Labour billionaire," a financial arrangement accomplished by, "a single phone call from Tony". (In the lobbyists' world, there are no last names.)

A day of miracles dawns for Draper.

Draper had just sent his weekly column to be published in the Express. "I don't write that column without vetting it with Peter Mandelson."

By now, it was 25 June. For Draper, it was a day of miracles - if you believed his version of events. Only two hours earlier, the Government had released its energy review. The coal industry would be saved - but the plan involved PowerGen having to sell some generating plant.

Simultaneously, newspapers reported that PowerGen would buy East Midlands Electricity for £2 billion - if the Government approved.

The alignment of the two announcements forced Margaret Beckett to deny categorically that a secret deal had been struck. "There has been no wink or nod to anyone about anything," she insisted.

Draper should have been pleased. But his mood was philosophical. "I don't want to be a consultant," he said. "I just want to stuff my bank account at £250 an hour."

Do any of these young men harbour misgivings about renting out their contacts? They see no reason for apology. It's their world after all. They are convinced that they crafted New Labour and now they are merely charging admission to the show they produced.

But even the best players of the game fear for its future.

During one of our meetings, Draper said: "I think there will be a scandal here eventually. The curtain is going to come down. I'm sure it will happen." Then he returned to discussion of fees and lunch.

Most of The Observer's research was carried out by Gregory Palast, a New York-based correspondent. He was asked to call and meet the lobbyists on behalf of US firms "seeking to establish an influential presence in the UK". The Observer set certain guidelines for the project: Palast was to use his own name; all correspondence was addressed from Union Associates, his New York firm; and approaches to lobbyists were made on behalf of two respected American firms which legitimately sought an entrée into the British marketplace.

At no time did The Observer ask for confidential government information or documents.

* * * *

Gregory Palast's other investigative reports can be found at www.GregPalast.com where you can also subscribe to Palast's column.

Gregory Palast's column "Inside Corporate America" appears fortnightly in the
Observer's Business section. Nominated Business Writer of the Year (UK Press
Association - 2000), Investigative Story of the Year (Industrial. Society - 1999), Financial Times David Thomas Prize (1998).

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