Allegations that Labour MP Geoffrey Robinson made fraudulent claims for grants while chairman of the failed engineering firm Transtec are to be investigated by the government.

The Department of Trade and Industry inquiry follows allegations in the Sunday Times by a former executive of the firm that Mr Robinson had told him to put false information in applications for the DTI grants.

A DTI spokesman said the allegations were "serious", and that it would "fully investigate".

"Officials from the DTI will be inviting both men in for interview this week and will also ask them to provide any evidence they might have.

"The department will then take whatever action is appropriate and make its decision public."

'Pack of lies'

Mr Robinson founded Transtec in the early 1980s, but resigned as chairman when he joined the government in 1997.

The company collapsed just before Christmas, going into receivership amid claims of accounting irregularities.

Transtec's former chief accountant, Max Ayriss, told The Sunday Times Mr Robinson told him to make up any shortfall in legitimate claims for DTI grants, so the firm could claim the maximum amounts possible.

"He asked me to complete applications for DTI grants which he knowingly [sic] contained false information," he said.

'Knowingly deceived'

Mr Ayriss said he and Mr Robinson had been "knowingly deceiving the DTI".

And former sales manager Peter Dickinson is reported to have said that DTI inspectors were told "a pack of lies".

The DTI had already launched an inquiry into other aspects of Mr Robinson's running of the Midlands car parts firm.

The former paymaster general is facing possible questioning over allegations that a £10.9m claim against Transtec from the Ford Motor Company had been omitted from the 1997 accounts of the firm.

These accounting irregularities led to the firm's shares being suspended, and the receivers being called in.

The DTI is now expected to expand that inquiry, to incorporate the latest allegations.

Notting Hill

Mr Robinson says he has no knowledge of the poor accounting practices.

The millionaire, once worth £30m, was cleared by the DTI in December 1999 of any wrongdoing in relation to his other business interests.

Mr Robinson resigned from the government in December 1998 in connection with a secret £373,000 loan made to Northern Ireland Secretary Peter Mandelson for the purchase of a house in Notting Hill, London.

Of the latest inquiry, a friend told BBC correspondents Mr Robinson was bound to be vindicated.

He said identical allegations had been made about him when Labour was in opposition, and that someone clearly has a grudge.

Maxwell 'links'

The latest DTI inquiry has fuelled Conservative demands for a full investigation of Mr Robinson's links with disgraced publishing tycoon Robert Maxwell, from whom he bought companies.

Shadow chief secretary to the Treasury David Heathcoat-Amory said: "If these allegations are correct, it shows that we were right to demand a full inquiry into every aspect of this company's dealings, including the known links with Robert Maxwell.

"The DTI are already legally vulnerable over the delay of more than a year between when I first alerted them in 1998 to serious question marks over Transtec and associated companies run by Geoffrey Robinson and their eventual decision last week to hold an inquiry.

"Unless there is now a full, impartial and open inquiry into the web of deals between Robert Maxwell, Geoffrey Robinson, government departments and senior Labour politicians, there will be suspicions about a continuing cover-up."

Shadow trade and industry secretary Angela Browning has tabled a series of Commons questions on Transtec to Trade and Industry Secretary Stephen Byers. He is expected to reply on Thursday.