Former Co-op bank chairman arrested as George Osborne announces inquiry

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The fallout from the Paul Flowers scandal shows no sign of abating as the former chairman of the Co-op bank was arrested and interviewed under caution on suspicion of supplying illegal drugs. As he was bailed to reappear, chancellor George Osborne ordered City regulators to launch an independent investigation into what happened at the bank.

Allegations have surfaced of undue political interference during the Co-op’s doomed bid to take over numerous branches of the newly nationalized Lloyds bank. The suggestion is that Mervyn King, then governor of the bank of England told NBNK that its bid for the branches could never succeed because of a political will to see the Co-op take them over. Both Labour and the Conservatives face allegations is improper political interference.

The inquiry will investigate the actions of the bank, financial regulators and the government since 2008 and include the merger with Britannia as well as the Lloyds deal.

Things have certainly escalated since last weekend when the Mail on Sunday first published evidence of Mr Flowers, a Methodist minister, buying drugs, taking them, and scheduling wild orgies around appearances before parliamentary select committees. MP’s began piling in on the wider ramifications of the scandal, and recriminations are flying around Westminster. Even the Methodist church has been dragged reluctantly into the feeding frenzy.

Flowers is surrounded by more controversy than drug use. He resigned from the wider Co-op board only after being threatened with an investigation into his expenses and the Co-op are blocking the remainder of his leaving payout.

Meanwhile Flowers spent the best part of Friday in a Leeds police station after being arrested in Liverpool in what West Yorkshire police described as an "ongoing drug-supply investigation". His solicitor Andy Hollas said that questioning had lasted from 1 am on Friday until 5 pm. He did however dismiss the suggestion that he had been arrested in a Merseyside rehab as ‘red top nonsense.

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