THE Government suffered a fresh blow last night after publication of a

report into the activities of one of its flagship local authorities,

Westminster Council.

The report, by district auditor John Magill, dealt with allegations

that Westminster councillors and officials began deliberately selling

council homes in marginal wards before the 1990 borough elections with

the aim of attracting more Tory voters.

Both the former leader of Westminster Council, Dame Shirley Porter,

and her-then Chief Whip Barry Legg, now a Tory MP, were named in the

affair, but both issued statements yesterday denying they had done

anything wrong, while the Government sought to distance itself from the

affair.

Mr Legg, the MP for Milton Keynes South-West, said:''I utterly refute

any suggestion of impropriety and when the time comes for me to put my

case I will be answering in full the matters raised in the report.''

The issue dominated Prime Minister's Question Time in the Commons,

where Mr Major said that he would condemn unreservedly those responsible

for malpractice at Westminster Council -- if the allegations were proved

to be true.

The allegations about Westminster Council follow hard on the heels of

a series of scandals which have damaged Mr Major's Back-to-Basics

strategy and yesterday Labour leader John Smith went straight into the

attack.

He said the Westminster Council report disclosed a ''devastating

example of financial corruption and the abuse of power by senior members

of the Conservative Party.''

He repeatedly urged Mr Major to condemn those responsible for what Mr

Magill described as ''wilful misconduct'' after his four year inquiry.

Mr Major said that if the allegations were confirmed he would condemn

them unreservedly, but he emphasised that the legal process had only

just begun and reminded Mr Smith that under British law people were

innocent until proven guilty.

Mr Smith demanded: ''Will you unequivocally condemn the gerrymandering

and wilful misconduct which has cost #21m of taxpayers' money in what

your party has described as a flagship council?''

Mr Major replied: ''Let me say unequivocally that if the reported

allegations about the council turn out to be true then of course I

condemn such activities, just as I would condemn malpractice in any

council, wherever it occurs.

''It would be wrong to comment on this case while the auditor is still

considering it.

''We should wait and see precisely what the outcome may be. Otherwise,

we are in danger of assuming people have committed malpractice until

they are proved innocent, which I would have thought you, as a

barrister, would recognise is no way to pass judgment.''

Mr Smith said: ''Do you not recollect the frequent endorsements you

and your colleagues have offered to Westminster Council? Taking

everything into account do you think these endorsements were wholly

wise?''

Mr Major retorted: ''The district auditor's report contains a number

of serious allegations. At this stage they are allegations. There is now

a perfectly proper legal process by which these will be examined in

depth and the truth arrived at.

''The district auditor himself has been at pains to stress that his

findings are provisional. I think you, of all members in this House,

should wait until those findings are confirmed before you are so swift

to judge.''

In a later statement to the House, Environment Secretary John Gummer

emphasised that the district auditor acted ''wholly independently'' of

government.

He said of the claim that Westminster's policy was to retain political

control of marginal wards through house sales that these were ''very

serious allegations.''

He continued: ''It is right that they should be treated with the

utmost seriousness. But the district auditor has made it clear that his

view on these allegations is provisional and that all the interested

parties have an opportunity to challenge that view.

From the Labour Front Bench Shadow Environment Secretary Jack Straw

said the report showed that the Conservative Party in Westminster was

''rotten and amoral to the core'' and had ''abandoned the most basic

principles of public morality.''