The embarrassment arose after the party let it be understood that Mr Hanley's new personal political adviser, currently a lobbyist with Lowe Bell Communications, would be paid as a civil servant employed by the Cabinet Office. Although advisers in government departments are generally paid for out of public funds as members of the Civil Service, previous special advisers to party chairman have been automatically paid by the party.
The new adviser is to be Tim Rycroft, a former official of the Social Democratic Party who defected to the Tories before the last general election. His appointment has yet to be formally approved by John Major.
After hasty Saturday night consultations between editions of the Sunday Telegraph, which reported the original story, it was confirmed that as Mr Rycroft's principal duties would be party ones, he would after all be paid out of party funds.
The original notion of using public funds to pay all or part of his salary appears to have arisen because, as Chancellor of the Duchy of Lancaster, Mr Hanley is also a member of the Cabinet.
But both the previous two chairmen to have special advisers - Kenneth Baker and Chris Patten - were also chancellors of the Duchy of Lancaster. Whitehall sources expressed some surprise last night that the party ever could have thought that Mr Rycroft could have his salary met by public funds.
The flurry over Mr Rycroft comes less than a week after Mr Hanley, to the intense irritation of the Treasury, and in contrast to most City forecasts, implied that Monday's 1 2 per cent rise in interest rates would be the last.
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