JOHN Major's Tory Government knew allegations of nepotism and religious bias that scandalised a Labour-run Scottish council were untrue but continued to peddle the accusations regardless, new papers show.

Scotland Office files reveal senior Tories were warned there was no hard evidence of wrongdoing at Monklands District Council and "very little prospect" of an inquiry achieving anything.

Officials working for Scottish Secretary Ian Lang warned that a report into Monklands by Professor Robert Black, QC, of Edinburgh University – which claimed there was a spending bias in favour of largely Catholic Coatbridge – contained no prima facie evidence.

As well as no hard evidence of wrongdoing at the council, Scottish Office staff also warned "very little prospect" of an inquiry achieving anything.

However, despite the warnings Mr Lang announced a public inquiry, while the Prime Minister cited the Black report in the Commons as proof of Labour malpractice, ensuring allegations of Labour sleaze stayed in the headlines and cutting short political careers.

The scandal erupted when it was claimed Monklands District Council in North Lanarkshire – whose ruling Labour group was all Catholic – was hiring staff and letting contracts on the basis of nepotism, political and religious bias, lavishing millions in public funds on Coatbridge while neglecting Protestant Airdrie.

Mr Black was commissioned by the council to compile a report in an effort to end the allegations, but his findings in 1995 exacerbated the situation, also claiming a large number of councillors had relatives on the staff.

New material from Scottish Office files at the National Records of Scotland, which were thought lost until a request by The Herald, show immediately after Black's report Mr Lang asked officials for advice on whether to hold a full public inquiry.

However, instead of agreeing with Black's report, his staff attacked it as "poorly presented, difficult to follow" and prone to recycling rumours.

Their five-page memo concluded: "Our recommendation is against the holding of [an] inquiry.

"We believe that ministers have good arguments to justify this conclusion – apart from the recruitment question Professor Black's report contains no prima facie evidence of any default, and holding an inquiry would not enable the Secretary of State to do much to remedy any default there has been."

However, the memo added there was "probably just sufficient" evidence to defend holding an inquiry about the council's recruitment procedure.

Despite the overall recommendation, a week later Mr Lang announced a public inquiry on the recruitment issue under then QC William Nimmo Smith. He later became a judge and was one of the appeal judges who examined the case of the man who was convicted of the Lockerbie bombing, Abdelbaset Ali Mohmend al Megrahi.

The Tories then continued to taunt Labour over "Monklandsgate" for the rest of the year.

Despite the Scottish Office complaint about a lack of hard evidence, then Tory prime minister John Major cited the Black report in the Commons as proof of shoddy Labour practices. Major also referred to "copious evidence" in the Black report in of a heated letter to Shadow Scottish Secretary George Robertson in July 1995.

That Labour had not found such evidence itself suggested it tried "to cover its tracks and sweep this whole issue under the carpet", Major wrote.

But Mr Nimmo Smith quickly concluded otherwise.

By mid-December, Scottish Office officials knew the inquiry wouldn't help their boss – instead it would highlight the original lack of evidence. One civil servant told the new Scottish Secretary, Michael Forsyth, that Mr Nimmo Smith's report would "exonerate" the council of failure to hire on merit and dismiss all the nepotism allegations.

"In my opinion it offers virtually nothing on which to criticise the council," he said.

On the eve of the Christmas recess, Mr Forsyth tabled a two-paragraph written answer in the Commons summarising Mr Nimmo Smith's conclusions, adding: "No further action is therefore required by me."

Mr Nimmo Smith's report concluded Mr Black's original work had dealt in "factually incorrect" allegations "based on ignorance and bigotry".

Jim McCabe, Labour leader of North Lanarkshire Council, which replaced Monklands District, and who attended the Nimmo Smith inquiry, said: "I knew the Tories would try to keep it going for maximum publicity. To my mind, that was exactly what they did, keeping it on the front page."

The Scottish Conservatives declined to comment.