The scene is Corfu. A multimillionaire and a Russian oligarch entertain a number of British political movers and shakers on a 238ft yacht in the crystal-clear waters of a Greek island ...

This article is more than 11 years old

This article is more than 11 years old

The plot reads like a novel. The scene is Corfu. A multimillionaire and a Russian oligarch entertain a number of British political movers and shakers on a 238ft yacht in the crystal-clear waters of a Greek island.

Within weeks of the encounter one of the players - a former cabinet minister twice forced to resign from the government - is unexpectedly catapulted back into the political limelight.

The British prime minister, down on his luck, takes a gamble and tries to revive his own fortunes by bestowing a peerage on an old foe, Peter Mandelson, and offers him a seat in his cabinet.

Two days later, intriguing details of his summer pursuits begin to emerge.

Mandelson, it is claimed, was "dripping pure poison" about Gordon Brown just weeks before being invited back to the fold, according to a column by Martin Ivens in the Sunday Times.

Over drinks with George Osborne at a small family-run taverna on Corfu's north-east coast, Mandelson, poised to step down as European trade commissioner before being pushed by Brown, is alleged to have provided the shadow chancellor with some ammunition against the prime minister, for years his sworn enemy.

When news of the meeting is made public, Mandelson retaliates with a thinly veiled threat to disclose details of what Osborne had allegedly told him about the Conservatives.

A week passes and the Sunday Times publishes claims that Mandelson gave trade concessions worth up to £50m a year to Russia's richest man after being entertained on his "superyacht".

The allegations prompt questions about potential conflicts of interests and threaten to bring fresh embarrassment on the British government. A spokesman for Mandelson said: "They had been on holiday in the same area and it was purely a social occasion."

Friends of Mandelson continue to hint that Osborne may come to regret what happened in Greece.

Benjamin Wegg-Prosser, Mandelson's former aide, wrote on his blog last week: "I suspect the last thing that either Peter Mandelson or Oleg Deripaska [the Russian oligarch] needed this week was a media feeding frenzy about what they did last summer."

The rendezvous between Osborne and Mandelson - two high-fliers from opposite ends of the political spectrum - was precipitated by the fact they have a mutual friend: multimillionaire Nathaniel Rothschild.

The hedge fund manager and son of Lord and Lady Rothschild, is close pals with Mandelson but also went to Oxford with Osborne.

It seems his parents' luxury villa on the only road between Agios Stefanos and Kerasia is not big enough to accommodate a private gathering of all of his friends, so Mandelson and other guests were "billeted" aboard Deripaska's £80m yacht.

Known as the "king of aluminium", Deripaska is thought to be Russia's richest man. His company Rusal is one of the world's largest producers of aluminium.

The Sunday Times claimed that in the past three years Mandelson has twice acted to cut European aluminium import duties and that Rusal would have been one of the main beneficiaries.

It is also claimed that at the time of Mandelson's Corfu holiday his trade department was a few weeks into a fresh investigation into aluminium foil tariffs, which could have hit one of Deripaska's companies.

As noted above, Mandelson's spokesman says they met for purely social reasons.

But in a sensational new twist to the tale on the day of Mandelson's 55th birthday Rothschild today spoke out to defend the Labour peer and suggested that it was Osborne's behaviour on the Mediterranean that should be held up for scrutiny.

Rothschild accused the shadow chancellor and Andrew Feldman, a Tory fundraiser also holidaying in Corfu, of soliciting a political donation from the Russian - in breech of party funding rules.

He also claims Feldman suggested – at a later date – that the donation be "channelled" through one of Deripaska's British companies to make it legal.

The Tories categorically deny the claim, saying: "The Conservative party has neither sought or received any donations from Mr Deripaska nor any of his companies."

Wegg-Prosser says of Osborne on his blog today: "George loves to play the game, and on recent form he is good at it, rising to the heights of shadow chancellor with relative ease. Everything for him is a game of political chess: a tactical policy move here, a strategic friendship there, a word in this columnist's ear and a lunch with that captain of industry.

"Always trading on insights, gossip, wit and considerable intelligence. Yet, might the same skills which have enabled him to climb the greasy pole be the same attributes that bring him down?"

The plot is still thickening.