Peter Hain, who led negotiations aimed at resolving the situation while a minister in Tony Blair’s government, said a sovereignty deal would end the current difficulties being faced by Gibraltarians in the dispute with Spain.
The Government has insisted there will be no compromise over sovereignty, and Foreign Secretary William has vowed to stand “shoulder to shoulder” with Gibraltar’s citizens in response to heightened pressure and increasingly belligerent rhetoric from Madrid.
A deal on ending the dispute, which dates back to the Treaty of Utrecht 300 years ago, appeared close in 2002 after negotiations between then Europe minister Mr Hain and his Spanish counterpart.
Mr Hain told the BBC Radio 4 Today programme that the Spanish got “cold feet” and backed off.
“There was a historic opportunity to have joint sovereignty which would have protected Gibraltarians’ way of life – they could remain British citizens, but it also recognised Spain’s historic claim at the root of this,” he said.
“I think we need to revisit those whole negotiations.”
The Labour former minister added that a deal would have “transformed life for Gibraltarians” as “there would have been an open border, they would have had aeroplane access, telephone access, all the things which are bedevilling them at the moment”.
Mr Hain’s comments are likely to be met with hostility in Gibraltar, where citizens overwhelmingly rejected the prospect of shared sovereignty in a 2002 referendum.
Relations between Gibraltar and Spain have deteriorated in recent months in a row over fishing grounds, with Spanish ministers suggesting a 50 euro (£43) levy on vehicles crossing the border and closing airspace.
Spanish foreign minister Jose Garcia-Margallo said the proceeds of a border fee could be used to help Spanish fishermen who have lost out because of damage to fishing grounds allegedly caused by Gibraltarian authorities following the creation of an artificial reef.
Gibraltar’s chief minister, Fabian Picardo, accused Madrid of “sabre-rattling” and behaving like North Korea.
The Foreign Secretary offered his support to Mr Picardo and emphasised that the UK “stands shoulder to shoulder” with Gibraltarians at a time of “increasing Spanish pressure and rhetoric”.
He said: “I also highlighted that we will respect Gibraltar’s 2006 constitution and the commitments the UK has repeatedly made not to compromise on British sovereignty over Gibraltar.”
European Commission (EC) spokesman Frederic Vincent confirmed that controls on the Spain-Gibraltar border are allowed because the latter is not included in the Schengen Borders Agreement, which permits people to travel freely.
Mr Vincent said these controls or sanctions must be “proportionate” and the EC is studying the legality of Madrid’s threat to impose a fee. The matter will be discussed at a future EC meeting, the spokesman said.
Mr Cameron’s spokesman said the potential levy by Spain had not been raised directly with the British Government.
At a regular briefing for journalists in Westminster, the Prime Minister’s spokesman said: “The Spanish have not raised the prospect of introducing border fees with us. We are seeking an explanation from them regarding reports that they might target Gibraltar with further measures.”
The Foreign Office has made clear that the UK expects Madrid to live up to commitments in the 2006 Cordoba Agreement, which included deals on border crossings and access for flights and creating a forum for regular dialogue.