The pounds 1.3m present that Charlie Haughey forgot about heady

In a breathtaking about-turn, Charles Haughey, the former Irish Prime Minister, admitted yesterday that he received pounds 1.3m in secret payments from Ben Dunne, the supermarket tycoon. He also conceded that he had misled even his own lawyers over the affair until two days ago.

The admission that he had in effect lied came in a statement read out to the Dublin tribunal investigating payments to politicians. The confirmation helps explains how, on a limited ministerial salary, Mr Haughey was able to sustain the lifestyle of a European monarch, with a mansion, a private Atlantic island, a yacht, expensive clothes and racehorses.

The revelation has major financial implications for Mr Haughey, who could face a huge tax and interest bill. Separately, he faces legal pressure from new management at Dunnes Stores to repay pounds 1.3m it claims was "improperly diverted" to him. Mr Haughey declined another pounds 1m offered privately earlier this year by Mr Dunne to ease his tax liabilities.

Last night, opposition leaders were asking pointed questions about Mr Haughey's links with other leading Irish business figures during his four terms of office. The fall-out is already bringing the new Prime Minister, Bertie Ahern, under fire. Pat Rabbitte, the outgoing commerce minister, said it was "utterly naive to pretend that people who were in Cabinet with Charles Haughey, including Bertie Ahern, can just say `that was then and this is now'. It is an earthquake in political terms when you have someone who was taoiseach making this kind of admission."

After the politician had eluded crisis after crisis over three decades, gasps of disbelief greeted Mr Haughey's counsel, Eoin McGonigal, in the Dublin Castle tribunal as he read the retired Fianna Fail leader's statement.

It said: "I now accept I received the pounds 1.3m from Mr Ben Dunne's solicitor, and that I became aware that he was the donor to the late Mr Des Traynor [Mr Haughey's banker] in 1993. I further accept Mr Dunne's evidence that he handed me the pounds 210,000 at Abbeville [Haughey's mansion] in November 1991."

The first sum mentioned was the total of payments channelled through overseas accounts from Hong Kong to the Isle of Man before reaching Mr Haughey. They were raised from Mr Dunne by Mr Traynor on Mr Haughey's behalf to pay off the then premier's huge debts. The second amount, in bank drafts in fictitious names, was handed personally to Mr Haughey with the words "Here's something for yourself". Mr Haughey, Mr Dunne claimed, had replied "Thanks, big fella".

In letters to the tribunal, Mr Haughey first denied receiving the funds. Last week, he amended this, with his lawyers saying he "probably" received the pounds 1.3m, but had not been told who the donor was. Mr Haughey, 71, is due to give evidence in person next week.

The latest admission was triggered by Ben Dunne's solicitor, Noel Smyth, who in April said he would, if ordered by the tribunal, reveal contents of five private conversations this year with Mr Haughey on the tribunal's investigations. It then emerged that Mr Smyth and Mr Haughey had discussed the pounds 1.3m three years ago. Telephone logs from Mr Smyth's office showed 20 contacts in 1994.

Mr Smyth gave a guarded description of one 1994 meeting at Abbeville, after he had secured Hong Kong documents indicating where the money had gone, at which Mr Haughey flatly denied he had got it. "It is difficult to explain that I wasn't alarmed [by the denial]", Mr Smyth said, adding "I would have enough judgement at this stage to know that what he said was not necessarily what you might think."

Mr Dunne's sister, Margaret Heffernan, had earlier confirmed thatshe confronted Mr Haughey who denied receiving the money and suggested her brother "needed medical help". Mr Dunne had been embroiled in a drink, cocaine and call-girl scandal in Florida in 1992.

A battle for control of the Dunnes Stores family trust led Ben Dunne to claim other trustees were not in control of the firm. He used the Haughey payments to show that they did not know what had gone on while he was chief executive.

Leaked documents from that family row prompted the Irish government to set up the tribunal to determine what cash changed hands and if political favours had been given.