Gordon Brown is ready to leave Britain’s biggest defence manufacturer, BAE Systems, to the mercy of the courts over allegations that it paid millions of pounds in bribes to win contracts, The Times has learnt.

Senior Downing Street sources said last night that he was adopting a “strictly hands-off approach” to the case. It is understood that a plea from BAE for the Prime Minister to intervene — as Tony Blair did three years ago in helping to halt a previous investigation — has already been “firmly rebuffed” by officials.

Yesterday an ultimatum issued by the Serious Fraud Office (SFO) for the arms giant to accept an out-of-court settlement expired. Instead, the agency charged with stamping out corruption by British business vowed to pursue claims that BAE paid out millions of pounds for lucrative defence contracts in Tanzania, the Czech Republic, South Africa and Romania.

“The Serious Fraud Office has announced today that it intends to seek the Attorney-General’s consent to prosecute BAE Systems for offences relating to overseas corruption,” it said. It is believed that the SFO is not yet ready to proceed with the case and the hard line adopted by Richard Alderman, its director, has angered BAE executives who believe further negotiation is possible. They say that the plea bargain terms offered so far, including a fine of up to £500million and an acknowledgement that BAE is guilty of corruption, are unacceptable.

Yesterday’s announcement wiped £530million off the value of BAE as its share price fell 15.2p to 334p — down 4.4 per cent. For a company that has for so long worked hand-in-glove with successive British governments, its isolation in Whitehall is proving an uncomfortable experience.

“If the director of the SFO obtains the consent that he seeks from the Attorney-General and proceedings are commenced, the company will deal with any issues raised in those proceedings at the appropriate time and, if necessary, in court,” BAE said in a statement yesterday.

The SFO has spent six years looking into allegations of corruption against BAE. A lengthy and expensive investigation into claims that hundreds of millions of pounds were secretly paid by the company through Swiss banks to prominent Saudis was scuppered with the help of Mr Blair in 2006. He sent a “personal minute” to the Attorney-General at the time, Lord Goldsmith, asking for the investigation into the £43billion Al Yamamah arms-for-oil deal to be halted because it threatened “national security” and jobs.

Norman Lamb, a Liberal Democrat MP who has long campaigned on the issue, said yesterday: “I think this is a political scandal as well as a corporate scandal. We’ve got to establish why the Government was in such an incestuous relationship with this company.”

The position of Baroness Scotland, the current Attorney-General, has been weakened after she was fined for hiring an illegal immigrant as a housekeeper. Mr Brown has had to resist intense pressure for her to be sacked.

A spokesman, however, made it clear that any decision on prosecuting BAE would be hers alone to take. “She will assess whether there is sufficient evidence for a prosecution and whether it is in the public interest to do so,” he said. “It is a constitutional principle that when taking a decision on whether to consent to a prosecution the Attorney-General acts independently of government.”

Downing Street is also making plain that no behind-the scenes help will be offered to BAE. “Gordon Brown is a different Prime Minister and even if we wanted to get involved, we don’t believe this case carries national security implications,” an aide said.

In 2006, the Saudis — who had been deeply embarrassed at the prospect of the scandal embroiling members of its royal family — threatened to withdraw intelligence co-operation and cancel multibillion-pound contracts for military aircraft unless the SFO backed off. “Such considerations,” said a Whitehall source yesterday, “do not apply to countries like Tanzania.”

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