A businessman who lent the governing Labour Party £1 million was chosen to head one of Chancellor Gordon Brown's flagship youth projects, the Treasury confirmed today.
But a Treasury spokesman said Rod Aldridge's job as head of the youth volunteering service was part-time and unpaid.
Rod Aldridge, who resigned yesterday as executive chairman of the Capita technology company because of the damage the continuing controversy over the loans was causing to the business, was appointed to head the youth volunteering service in December, some two months after making the loan.
Labour today strongly denied any link between the payment and Mr Aldridge's appointment to the youth volunteering service.
A party spokesman said: "The Chancellor has never had any knowledge of these loans and did not know the identities of the lenders until the details were released by the Labour Party."
A spokesman for Mr Brown added: "The Chancellor knew nothing about Mr Aldridge's loan until last week.
"He had nothing to do with his appointment to chair the youth service and he has never even had a meeting with Mr Aldridge."
He said Mr Aldridge had been appointed by an independent panel following an open recruitment process and ministers had no say in the appointment.
As Chancellor, Mr Brown has always said he has no role in party fundraising because of the potential for perceived conflicts of interest.
It emerged last week that he was not even told of the £14 million raised in secret loans to fund the party's general election campaign, and he is likely to be unhappy at seeing his name dragged into the current controversy.
Mr Aldridge was the most controversial name on Labour's so-called "rich list" of 12 wealthy backers - released earlier this week under intense political pressure - who lent money to bankroll the election campaign.
Capita has won billions of pounds-worth of public sector IT projects, and it was the fierce commercial backlash which followed the disclosure of his name which led Mr Aldridge to quit the company.
In a statement he said: "There have been suggestions that this loan has resulted in the group being awarded Government contracts. This is entirely spurious".
It was also announced yesterday that Tony Blair's personal fundraiser Lord Levy is to be subjected to a televised grilling by MPs investigating allegations that Labour offered peerages in return for financial support.
His appearance before the House of Commons Public Administration Select Committee will be the first time in almost a decade that the secretive former music mogul has spoken publicly about his role in filling Labour's election warchests.Reuse content