Fresh revelations about A4e and prime minister's former family tsar will be a considerable embarrassment to the government

This article is more than 8 years old

This article is more than 8 years old

This article is the subject of a legal complaint made on behalf of Emma Harrison CBE and James Harrison.

Emma Harrison, the prime minister's former family tsar who quit amid allegations of "fat cat" pay and fraud, received around £1.7m over two years from leasing out properties, including her family stately home, to the firm she built on the back of state-funded welfare-to-work programmes.

Records show that money was funnelled into two companies and a pension fund in which Harrison or her husband has a controlling interest.

The couple were paid £316,000 for allowing A4e to use their country home for board meetings and other events. Emma and James Harrison were paid another £1.4m for leasing out two other properties to Emma Harrison's own firm, including its Sheffield headquarters.

The payments were in addition to Emma Harrison's £365,000 annual salary and the payment of an £8.6m shares dividend, bringing the total earnings of the Harrisons, who share their 20-bedroom home, Thornbridge Hall in Derbyshire, with 11 friends, to some £11m between 2009 and 2011.

The revelations will be a considerable embarrassment to the government, which still has £478m worth of Work Programme contracts with A4e.

The firm, which earned around £180m last year wholly from providing public services, was handed responsibility for getting the long-term unemployed back into work in five parts of the country, under the coalition government's scheme. It is also the preferred bidder for a £15m prisoner rehabilitation contract, although last night government sources suggested it could backtrack on the proposed deal.

Emma Harrison, who established A4e 25 years ago, resigned as the prime minister's family tsar on Thursday after it emerged that four of her former employees had been arrested on suspicion of fraud.

She subsequently stepped down from her company on Friday, citing fears that media attention around her position could badly tarnish A4e's reputation.

And last night the government was reeling under new revelations about A4e and the Harrisons.

Developments included:

• Supermarket group Sainsbury's claimed that A4e had "persistently approached" its stores asking it to take on job seekers on unpaid work experience, "against our wishes".

• Fast-food chain Burger King became the latest firm to pull out of the Work Programme, citing "public concerns".

• New figures show that the rate at which the long-term unemployed have come off benefits has halved since the launch of the Work Programme.

• Eighty-five charities working with large private firms to help people back into work have dropped out of the Work Programme since it was first launched in 2010, citing growing concerns that they were being muscled out of earnings.

• The Department of Work and Pensions, it emerged, has exempted private companies in the Work Programme from inspections by Ofsted, the standards body that previously inspected companies involved in welfare and training.

• Labour claimed that the government was aware of the suspected fraud at the offices of A4e just weeks before Harrison was made an adviser to Downing Street on family issues.

Liam Byrne MP, Labour's shadow work and pensions secretary, said: "David Cameron has serious questions to answer. It has now emerged that the government was fully aware of the fraud at A4e when the prime minister decided to appoint its chair to advise him.

"Why did he appoint a woman whose company was being investigated for fraud by his own government?"

Byrne added: "This government's failure to get young people off welfare and into work is creating a jobless generation. Yet instead of raising their game, ministers' back-to-work schemes are descending into chaos. With only half as many people coming off the dole and into work as a year ago, it is no wonder the dole queues are spiralling."

A DWP spokesperson said: "The Work Programme will not repeat the failings of older schemes that struggled to get people into sustainable employment and often ended simply recycling people through the system. The emphasis now is on securing long-term employment, with payments based on the duration someone stays in work, not just getting them off benefits rolls."

A spokesman for Harrison disputed any wrongdoing, adding: "We have never misused or redirected funds through our companies. Any transactions between our companies is 100% legitimate and has a full audit trail.

"We own personal properties personally, not through companies. We own business properties in businesses, not personally. The two are not to be confused."

• This article was amended on 27 February 2012. In the original the spokesman quoted at the end of the story was said to represent A4e. The spokesman was for Emma Harrison. This has been corrected.