Lord Paul, a major party donor, was told by Scotland Yard last week that he will not face charges over his expenses claims.
However, he now faces a House of Lords investigation into his conduct by a subcommittee chaired by Baroness Manningham-Buller, the former head of MI5.
Political sources have revealed that Lord Paul – who is one of the country’s richest men and worth an estimated £500 million – has quietly and voluntarily repaid the £38,000.
The peer has admitted that he never spent a single night at an Oxfordshire flat that he registered as his main home while claiming money in overnight expenses for a London property.
Opposition MPs seized on the move last night as an admission that the expenses were not justified.
Graham Stuart, the Conservative MP for Beverley and Holderness, said: “Lord Paul has been shamed into returning the money he should never have claimed in the first place.”
Mr Stuart has written to Downing Street seeking answers to four questions about Lord Paul, including what led to the Labour peer being appointed to the Privy Council last year – a status which entitles the peer to use the words “the Right Honourable” in front of his name.