George Osborne has been forced to pay for a £160 train ticket upgrade after he sat in a first class seat with only a standard ticket.
The Chancellor boarded the train to Euston at Wilmslow, Cheshire, before settling into first class with his special adviser.
He was then challenged by a ticket collector who refused to allow the Chancellor to remain in his premium-priced seat - unless he paid the extra cost.
His special adviser reportedly said Mr Osborne could not possibly remove himself to sit among the general public in standard class for the two-hour journey to London.
Sky News Deputy Political Editor Joey Jones said a "disagreement" occurred on the train about whether Mr Osborne should move to a standard seat, or pay for the upgrade.
"The Chancellor ... was on his way back from Wilmslow to London Euston and there's quite a flurry on because it turns out that he was not apparently sitting in the part of the train that he was entitled to sit in," Jones said.
"According to Virgin Trains, he had a standard class ticket, but he sat down in the first class part of the train.
"In the end he has paid quite a substantial sum ... to make sure that he is able to sit in the first class part of the train."
Responding to the incident, Labour's shadow cabinet office minister Michael Dugher, said: "Another day, another demonstration of how out of touch this Government is.
"Just like Andrew Mitchell, George Osborne obviously thinks it's one rule for him and another for the plebs he's so keen to sit apart from," he added.
RMT leader Bob Crow said: "This says it all about this rotten government. Here we have a millionaire chancellor who thinks he's above the normal rules and laws. George Osborne attempting to bunk first class is this ConDem administration in a nut shell."
There has yet to be any comment from Mr Osborne.
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