Hague admits Ashcroft peerage pledge error

But he said Cabinet Office documents obtained by the BBC showed that the government knew that Ashcroft, a businessman with close ties to Belize in central America, was only promising to change his residency position and not his tax status.

Hague, when Conservative leader, had given the assurance in a letter to then Prime Minister Tony Blair in 1999 as part of a successful campaign to overcome objections to Ashcroft becoming a member of the House of Lords over concerns he was a tax exile.

"Mr Ashcroft is ... committed to becoming resident by the next financial year in order properly to fulfil his responsibilities in the House of Lords," Hague wrote.

"This decision will cost him (and benefit the Treasury) tens of millions a year in tax, yet he considers it worthwhile."

Ashcroft was widely believed to have agreed to end his "non-domicile" status when he was ennobled in 2000.

But this month he sparked a political storm when he disclosed he had subsequently agreed with the government to become only a "long-term resident" in Britain, sparing him from paying UK taxes on his overseas earnings.

Labour have demanded the Conservatives repay donations given by Ashcroft, now party deputy chairman, and have questioned how long Hague and current leader David Cameron had known about Ashcroft's actual tax position.

Hague told BBC radio it had been an "important change" for Ashcroft to end his non-resident status.

But he said it had been an error to state how much the move would cost Ashcroft.