JOHN PRESCOTT is to be allowed to remain in his grace-and-favour flat at Admiralty House in Whitehall after leaving the government this week.

The deputy prime minister, who is recuperating after a bout of pneumonia, has privately agreed with Sir Gus O’Donnell, the cabinet secretary, that he can stay temporarily while he looks for alternative accommodation in London.

Prescott met O’Donnell last week to discuss his housing. He has lived in one of the three luxury flats reserved for ministers in Admiralty House since 1997.

The unusual arrangement to stay on is set to be challenged as the flat is estimated to cost the taxpayer £100,000 a year. Tax experts claim he should face a hefty bill on the accommodation as he can no longer claim it is an essential perk of his job.

Whitehall sources said last week that the arrangement was temporary as Prescott, who announced his resignation last September, had yet to find new accommodation. He owns a turreted house in Hull nicknamed Prescott Towers, but his property search in the capital has been delayed by his illness.

The source said: “Prescott met Gus O’Donnell last week to discuss being allowed to stay in Admiralty House. It was agreed that he could stay while he looks to buying a place of his own in London.

“It’s only practical, as it takes two to three weeks to move out. He has been told by his doctors he should be taking it easy after his recent health problems.”

Last week Downing Street confirmed that Tony Blair would also be allowed to use Chequers, the prime minister’s country residence, for a few days while renovations on his new London home in Connaught Square are completed.

The arrangements for other grace-and-favour homes, including the foreign secretary’s, will be decided when Gordon Brown announces his cabinet after taking over the premiership this week.

Prescott’s flat in Admiralty House was most famously the venue for a reconciliation dinner between Blair and Brown in 2004 when the relationship between the pair had reached its lowest ebb.

Much of Prescott’s political reputation was destroyed last year after he admitted having an affair with his secretary.

He later lost the responsibility for running any Whitehall department and was forced to give up Dorneywood, his grace-and-favour country home, after being pictured playing croquet there during a week when he was standing in for Blair.

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