Ministers have been accused of breaking the ministerial code by approving a £75,000 payoff for Peter Mandelson.
Official documents released this week revealed that Lord Mandelson was handed the extraordinary golden goodbye despite being sacked in disgrace over his relationship with Jeffrey Epstein.
Downing Street on thursday defended the decision to make the secret payment – but also insisted that Lord Mandelson should now give the money back or donate it to charity,
But Conservative MPs said the payment had broken Treasury rules on the proper use of public money – and may also have breached the ministerial code.
Tory frontbencher Neil O’Brien described the payment as ‘hush money’, saying it appeared to have been made to avoid Lord Mandelson causing further embarrassment to Keir Starmer.
‘It’s there in black and white,’ Mr O’Brien said. ‘He was going to reveal stuff, so they gave him £75,000 of taxpayers money to keep his mouth shut.’
Lord Mandelson’s contract entitled him to three months’ notice worth £40,330. But he was also handed a ‘special severance payment’ worth a further £34,670.
In fact his contract stated he could be dismissed with no compensation at all in the event of ‘gross misconduct’.
Keir Starmer sacked Lord Mandelson over his friendship with Jeffrey Epstein – but still handed him a £75,000 payoff funded by the taxpayer
But officials said Lord Mandelson was demanding the remainder of his four-year contract was bought out at a cost of £547,000 and believed he could take sue.
However, they also appeared to be concerned that a public spat with Lord Mandelson could cause bad publicity.
One senior official said the payment needed to be approved quickly, adding: ‘There is a potential that, absent a positive indication, Peter goes public on some of his claims so there is some urgency.’
In a separate note a Foreign Office official said: ‘The individual has a high profile, which could give rise to reputational damage to the Foreign Office and Government were a court or tribunal claim to be pursued.’
Officials congratulated themselves on ‘getting this settlement down this low with minimal fuss’.
Foreign Office permanent secretary Sir Olly Robbins described it as ‘good value for money’.
But the official Treasury manual on ‘Managing Public Money’ states that department should not treat so-called ‘special severance’ payments ‘as a soft option, for example to avoid management action, disciplinary processes, unwelcome publicity or reputational damage.’
The Treasury states that department should fight dubious employment claims even if the likely cost exceeds the payment involved as ‘winning such cases demonstrates that the government does not reward failure’.
The rules are enshrined in the ministerial code which states that ministers ‘should be mindful of the requirements set out in Managing Public Money, and of the Accounting Officer’s role as a steward of the department’s resources’.
Conservative MP Kieran Mullan told the Mail: ‘There is no getting out of this now. This puts it in black and white that they have broken the ministerial code.
‘They have directly broken their own rules with this disgraceful payout. You are not allowed to use taxpayers money to be a bung to manage bad publicity but that is exactly what they did.
‘We don’t have to assume or infer that. It is in there in writing in the papers. The Foreign Secretary, the Treasury and No 10 all signed this off. Who is now going to take responsibility and resign?’
Downing Street defended the payment, saying that Treasury chief secretary James Murray had approved the payoff ‘in line with standard Treasury guidance on the use of severance payments’.
The PM’s official spokesman denied the cash amounted to ‘hush money’ saying it had been paid to end Lord Mandelson’s employment quickly without the risk of further legal action.
‘He was entitled to go to employment tribunal,’ the spokesman said. ‘There was a genuine worry that a long legal battle funded by the taxpayer could see costs run to hundreds of thousands of pounds.’