The Conservatives are disputing how and who should pay the reputed £160,000 cost of paying off Barry Legg as the party's chief executive.

The party board has refused to accept responsibility or liability for the former MP, who was appointed without their knowledge or endorsement by Iain Duncan Smith.

The Tories have already had to find £80,000 in severance pay for Mark MacGregor, who was Legg's predecessor..

A senior party insider told today's Times: "The board regards the letter of appointment which Mr Legg was granted as not legally binding.

"The board has made it clear that whoever signed the letter of appointment, which Mr Legg regards as his contract of employment, is financially liable. As the board never even saw the letter, or knew about the appointment, the party cannot be made to pay for Mr Legg's departure."

Former chief whip Derek Conway, who lobbied for Legg to be sacked, has warned that Duncan Smith will have to put in a "faultless performance" between now and Christmas in order to avoid a leadership challenge.