Peter Mandelson has taken the oath and his seat in the House of Lords today amid calls for him to turn down a £1million 'golden goodbye' pay-off from the European Commission.

Baron Mandelson of Foy in the county of Herefordshire and Hartlepool in the county of Durham - who will be known simply as Lord Mandelson - wore the traditional ermine-lined scarlet robes.

During the short ceremony of induction, he swore allegiance to the Queen: 'I, Peter, Lord Mandelson, do swear by Almighty God that I will be faithful and bear true allegiance to Her Majesty, Queen Elizabeth, her heirs and successors according to law. So help me God.'

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Baron Mandelson of Foy and Hartlepool being inducted at the House of Lords today

New peers are flanked by two supporters when they take their seat and Mr Mandelson chose Labour former Lords Leader Baroness Jay of Paddington and Labour former Lord Chancellor Lord Falconer of Thoroton.

Tory MPs said it would be outrageous for Mr Mandelson, the new Business Secretary, to take the £1million 'golden goodbye' at a time when the Government was criticising banks for generous bonuses and redundancy payments.

Mr Mandelson resigned as EU Commissioner after four years following Gordon Brown's decision to invite him back into the Cabinet.

And yesterday it emerged that he will be eligible for a generous 'golden goodbye' under the EU's rules.

New peers are flanked by two supporters when they take their seat and Mr Mandelson chose Baroness Jay and Lord Falconer

Brussels officials said the fact Mr Mandelson had quit before the end of his five-year term in charge of EU trade policy made 'no difference' to his entitlements.

He qualifies for 'transitional payments' worth £234,000 over the next three years and will also be paid around £78,000 a year from the European Commission on top of his Cabinet salary of £104,000.

The top-up ensures that his total pay in Government will be the same as his £182,500 salary as trade commissioner.

In addition, Mr Mandelson's Brussels stint will entitle him to an annual index-linked pension worth £31,000.

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Baron Mandelson wore the traditional ermine-lined scarlet robes

He will also get one-off resettlement expenses worth as much as £15,000. His London base is a terraced house in Regent's Park, central London, bought for £2.4million in 2006.

Last night a source close to the minister said he was likely to accept his entitlements. 'Peter doesn't know what he is going to get. He hasn't been told,' he said.

Mark Francois, the Conservative spokesman on Europe, said details of Mr Mandelson's continuing payments would anger British voters.

He said: 'Not only did Gordon Brown recall Peter Mandelson to shore up his own position, but it adds insult to injury to know taxpayers will have to pay extra for the privilege.'

Foy is a village in Herefordshire where he once owned a holiday cottage and Hartlepool is his former Commons seat

David Heathcoat-Amory, a Tory member of the Commons European scrutiny committee, said Mr Mandelson should turn down the payments.

'It is not as if he has lost his job. He is moving into a government job with a good ministerial salary,' he said. 'If he takes this money, it will be a very bad example.'

Matthew Elliott, chief executive of the Taxpayers' Alliance campaign group, said the 'vast amount' Mr Mandelson would be paid was ' totally inappropriate'. He said the pay-offs showed the 'massive divide between unaccountable people in power and the taxpayers who foot the bill'.

All smiles: But will Mandelson's 'transitional payments' anger voters?

Yesterday Mr Mandelson also faced questions over trade concessions worth up to £50million a year to Russia's richest man.

It emerged that this summer, while still trade commissioner, Mr Mandelson was entertained on a yacht owned by aluminium tycoon Oleg Deripaska.

Mr Mandelson's trade department has twice acted to cut European aluminium import duties. Mr Deripaska's company Rusal, the world's largest producer of aluminium, was one of the main beneficiaries.

A spokesman for Mr Mandelson said: 'He has never, ever had any discussion with Mr Deripaska about aluminium or anything else in relation to any of his company interests.

'The tariffs were the subject of a huge debate among 27 member states, not something Peter Mandelson as an individual decided.'