A vice girl known as 'Mistress Pain'  has claimed she once watched chancellor George Osborne snort cocaine.

Natalie Rowe, now 47, worked as boss of the Black Beauties escort agency. She told Australian TV network ABC that the incident occurred at a party in 1994, when she was dating one of the chancellor's university pals, William Sinclair.

A photo of Osborne, 41, with his arm around Rowe emerged six years ago. Osborne was just 22 when the photo was taken, about the age when he left Oxford University and joined the Conservative Party.

Asked by ABC whether she had ever become "more than friends" with Osborne, Rowe replied: "Yes."

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Osborne had strenuously denied any wrongdoing when the photo of himself and Rowe first appeared in the public domain, admitting only to meeting her with his friend William Sinclair “occasionally in the autumn of 1993, and it soon became clear that my friend [Sinclair] had started to use drugs.”

Osborne insisted:“That is, and always has been, the sum total of my connection with this woman [Rowe]. It was a stark lesson to me of the destruction which drugs bring to so many people’s lives.”

Rowe's new claims follow hot on the heels of another embarrassment for Osborne. He faced a stunned silence after making a crude sex joke at the GQ Awards last week.