Ministers will "unwind" any tax avoidance schemes being used by public sector employees, Chief Secretary to the Treasury Danny Alexander has announced.
Mr Alexander was called to answer an urgent question in the Commons on 2 February 2012, after it was claimed that the chief executive of the Student Loans Company (SLC) had avoided paying tax on his pay package by being paid via a private company.
The minister told MPs that the SLC would "change the arrangements" so that Ed Lester's tax and National Insurance payments would be collected "at source".
Mr Alexander has launched a review of the tax affairs of top civil servants following the claims about Mr Lester's arrangement, which were revealed by a BBC Newsnight investigation.
"Across government, if any appointments are found... which do not provide value for money, I would urge departments to seek to unwind them as quickly as possible and as quickly as is compatible with securing good value for public money," he told MPs.
Labour's Nick Brown, who tabled the question, said it was "reassuring" that Mr Lester's terms had changed, but claimed: "The purpose of these arrangements was to avoid paying income tax and National Insurance".
He asked who was "explicitly" aware of the arrangement.
The chief secretary confirmed that he was responsible for signing off civil service appointments with a salary over £142,500, but that "terms and conditions are negotiated by the appointing department", in this case, Vince Cable's Department for Business, Innovation and Skills.
Mr Alexander said he was "not aware... of any tax benefit to the individual concerned" when he approved Mr Lester's salary level.
"There is no place for tax avoidance in government," he said.
Margaret Hodge, who chairs the Public Accounts Committee, said she welcomed the review, but urged the minister to go further.
She called for a full list of all senior civil servants paid through companies and for a report on HMRC's role in Mr Lester's arrangement.
Conservative Conor Burns described the revelations as "obscene".
Mr Alexander agreed, adding: "I can understand why people would see it that way - frankly I see it that way myself."