LINKING a historical £400 million debt to Iran and the regime’s continued detention of Nazanin Zaghari-Ratcliffe created a “hostage situation”, a foreign minister has warned.

Combining the two would be a “grave error”, Tory frontbencher Lord Goldsmith of Richmond Park told Parliament.

The Conservative peer also rejected that the Government was “doing nothing” to secure the release of the British-Iranian dual national - whose sister-in-law is a GP in Cwmbran - who has been in custody in Iran since 2016 after being accused of plotting to overthrow the government.

He made his comments as he was repeatedly pressed at Westminster over the plight of Ms Zaghari-Ratcliffe and the £400 million owed by the UK to Iran over the non-delivery of tanks in 1979, with the shipment stopped because of the Islamic revolution.

It came after her husband, Richard Ratcliffe, ended his hunger strike in central London after almost three weeks.

He argues his family is “caught in a dispute between two states”.

Facing criticism in the House of Lords over the administration’s handling of the case, Lord Goldsmith said: “The Government is doing something.

“I just do not accept the idea that the Government is doing nothing.

“However, were the Government to pay hundreds of millions of pounds to the Iranian government that would undoubtedly be seen as a payment for a hostage situation.”

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Pointing out an independent international tribunal had ruled the UK owed Iran £400 million, leading lawyer and independent crossbencher Lord Pannick, said repaying the money “without further delay would be to meet our obligations and not to pay a ransom”.

Lord Goldsmith said: “No one disputes that there is a historic debt – one which is owed to pre-revolutionary Iran.

“However, here I am answering a question about Nazanin and yet the majority of questions relate to that money.

“The combination of that issue with the issue we are dealing with which is a human case and one which is appallingly tragic is exactly what we should be avoiding.

“Because otherwise this does become a hostage situation and any payment of any money becomes payment for a hostage. And that is not in our international interests.”

Another top QC and independent crossbencher Lord Carlile of Berriew said: “Does the minister agree that one of the ambitions of this country is that Iran should adhere to the rule of law? If so, should we not be adhering to the rule of law?”

Lord Goldsmith said: “Of course it is in everyone’s interest that Iran as a country adheres to the rule of law, just as the UK does.”

He added: “I think it would be a grave error for this Government to behave as if (this) historic debt is in any way connected to the incarceration of Nazanin. I think it would be disastrous foreign policy.”

Liberal Democrat former leader Lord Campbell said: “The problem is that the Iranian’s regard the two as being linked and if we will not accept that then how is the difficulty to be resolved?”

Lord Goldsmith said: “If it’s the case that Iran conflates these two issues, and I think he is right in saying that they do, that’s even more reason why we should not allow dual nationals to be used as diplomatic leverage.”

Earlier, Labour peer Lord Foulkes of Cumnock argued Boris Johnson, when foreign secretary, had pledged that the debt would be repaid.

He argued the Prime Minister had a “moral duty” to secure the release and return of Ms Zaghari-Ratcliffe.

Lord Goldsmith said: “We continue to call on Iran to end Nazanin’s suffering immediately and to allow her to return home to her family in the UK.

“The UK does not and never will accept our dual nationals being used as diplomatic leverage.”

Lord Judge, a former lord chief justice of England and Wales, said: “Do we owe money to Iran? If we do why hasn’t it been paid?

Lord Goldsmith said: “The Government cannot accept that we have responsibility for the incarceration and appalling treatment of Nazanin.

“This is a decision made by the government of Iran, it’s a decision which they can reverse.

“We will and continue to do as much as we possibly can to secure her release.”