Giving evidence to the Public Administration and Constitutional Affairs Committee, the former Home and Foreign Secretary said: “That letter without any question breached purdah rules and it probably breached normal rules of public spending as well.
“It was a party political flier sent to two million households and it was wrong for the government to do it.”
He also implied criticism of the Treasury’s chief mandarin Sir Nicholas Macpherson.
This followed Welsh Labour MP Paul Flynn complaining that senior civil servants had “sprayed his opinions around” during the referendum in reference to Sir Nicholas’ intervention saying that the rest of the UK could not share the pound with an independent Scotland.
Mr Straw said: “The civil service machine is there to serve the public as well as the government of the day and has to abide by very clear principles of balance and impartiality. And that is the difficulty is the machine is committed to take part in referendum campaigns.”
The evidence came as the committee was considering the government’s plans to not have a normal purdah period for the European Union in/ out referendum.
The SNP said that Mr Straw had confirmed their view on the mishandling of the referendum by the UK Government.
Tommy Sheppard, SNP Westminster spokesman on the Cabinet Office, said: “The UK Government was clearly in breach of the purdah rules, and the Treasury under Sir Nicholas Macpherson went rogue and became wholly politicised - his role has already been severely criticised in a Public Administration Select Committee report in March. In this activity, as well as other matters such as the secret polling, taxpayers funded the No campaign.”
He added: “The purdah rules are there for a reason, yet the Tories have already ripped them up for the upcoming referendum on EU membership.”
The UK Government denied breaching purdah during the independence referendum and pointed out that the mail drop was before the purdah period going out on 23 June ahead of the vote on 18 September.
A Scotland Office spokesman said: “It was a very important decision and people needed to properly informed about what was at stake and the issues behind them.
“It was also a clear government policy to keep Scotland in the UK and we had a duty to clearly explain that to people in Scotland.”