Lord Simon of Highbury and Canonbury, the Minister for Trade, is to donate some of the profits from the sale of his BP shares to fund places at his old school.
The school, Christ's Hospital in Horsham, West Sussex, founded by King Edward V1 in 1552 to care for London's poor, will receive a charitable trust fund from Lord Simon, who won a scholarship there in 1950.
Most of the 800 pupils are assisted to some extent and more than a third of parents pay no fees.
The minister was embroiled in a six-week controversy over his Pounds 2 million shares following Opposition allegations over conflict of interest.
His donation to Christ's Hospital is likely to attract further controversy as it comes just after the Government's abolition of the Assisted Places Scheme.