Ed Lester, the chief executive of the Student Loans Company, has been revealed to have avoided tens of thousands of pounds in income tax under a deal approved by the government.

It has been confirmed that he was paid through a private firm he had established rather than being paid direct.

Through this tax avoidance mechanism, Mr Lester was able to reduce his income tax liability by £40,000 a year.

But according to Danny Alexander, the chief secretary to the Treasury, he did not know that the arrangement allowed him to avoid tax.

"I have asked Treasury officials to urgently review the appropriateness of allowing public sector appointees to be paid through an agency by a personal service company," he remarked.

Mr Alexander added: "I have also written to my cabinet colleagues asking them to carry out an urgent internal audit to ensure that all senior consultancy appointments provide value for money."