Mandelson to get £1m pay-out from EU

Peter Mandelson will pick up a £1m "golden goodbye" package following his departure from Brussels, despite walking out after serving only four years as Britain's European Commissioner.

The new Business Secretary will receive a £104,000 salary as a minister in the House of Lords, and qualifies for a total of £234,000 in "transitional payments" over the next three years to help him readjust to life outside the European Commission.

But he is also guaranteed an EU pension when he reaches 65 – in 2018 – starting at £31,000 a year and rising in line with the cost of living. The overall cost of funding such a pension is put at £750,000.

While most Britons prepare to tighten their belts as the credit crunch continues to bite, the new Cabinet minister – who will become Lord Mandelson of Foy and Hartlepool next week – can look forward to an additional annual payment of £78,000 for the next three years.

The gold-plated package will help Mr Mandelson pay off the mortgage on his £2.4m house in Regent's Park, London. The minister bought the property in 2006, two years into his term in Brussels, with a £750,000 loan – some four times his then salary.

David Heathcoat-Amory, a Tory member of the MPs' European Scrutiny Committee, urged Mr Mandelson to reject the pay-out. He said: "It is not as if he's lost his job. If he takes this money, it will be a bad example for a government criticising severance payments and City bonuses."

He was plunged into more controversy as it was alleged that his decisions as Trade Commissioner had benefited the business empire of a Russian oligarch who entertained him on his yacht last summer.

Mr Mandelson's relationship with Oleg Deripaska faced fresh scrutiny after it appeared that he was the commissioner responsible for recommending last year's controversial decision to slash customs duty on aluminium brought into the EU. Russia profited massively from the move, and Mr Deripaska's company, UC Rusal, the world's biggest aluminium producer, was a big beneficiary. But Mr Mandelson's aide insisted the minister had never had a conversation with the tycoon, or any of his employees, about aluminium.