ONE of Britain's top public officials, who was allowed to avoid tens of thousands of pounds in income tax under a deal approved by Government ministers, is to stand down.

Ed Lester, chief executive of the Glasgow-based Student Loans Company (SLC), announced his decision three months after the revelation that he had avoided deductions of around £40,000 a year by being paid via his private firm.

Mr Lester, whose basic salary is £140,000, has since been added to the payroll.

Yesterday the SLC said that Mr Lester would step down when his two-year contract expires at the end of January.

The SLC is now advertising for a new chief executive on an "attractive salary". The advert says the SLC board is looking for "an accomplished and credible senior leader - who is politically adept and demonstrates integrity at all times".

A spokeswoman for the SLC said: "Ed Lester's two-year contract ends on January 31, 2013. The process to recruit his replacement is under way now to ensure a smooth handover."

Mr Lester's pay deal, agreed by Danny Alexander, the Chief Secretary to the Treasury, was disclosed in an HM Revenue & Customs letter obtained under freedom of information laws.

Mr Alexander insisted he did not know the arrangement allowed Mr Lester to avoid tax, and said the way in which Mr Lester received his £182,000 package, which included bonus payments and pension contributions, would be changed.

The sums were paid to Mr Lester's private company, allowing him to pay corporation tax of 21% instead of 50% income tax if he had been paid directly through the SLC payroll.

A review identified more than 2400 cases of public sector staff being employed indirectly, costing the taxman millions of pounds. Since January, 350 such contracts have been ended and tighter rules introduced.

Mr Alexander said everyone in the public sector "should be on the payroll and paying the correct amount of tax".