An academy headteacher earned almost £400,000 in a year by running a private business on the school site as well as taking his salary, MPs heard today.

Sir Greg Martin, who runs the Durand Academy in south London and has recently opened a state boarding school in West Sussex, received more than £229,000 in basic salary and pension contributions in 2013, the Public Accounts Committee heard.

But the head also pocketed an additional £161,000 last year as sole director of a leisure centre that operates on the school site. The combined package netted him around £390,000 in 2012/13. The total is believed to make him by far by the best paid school leader in the country.

In 2013/14 the head took home £175,000 through the leisure centre but his salary and pension was £58,000 lower than the year before. 

Sir Greg also admitted that he is also a former director of a dating agency, which is registered to the school site.

The academy trust now faces being hit with a financial notice improve by the Education Funding Agency within two months if improvements are not made to governance. The EFA is concerned about the contracts that allow Mr Martin to operate the leisure centre.  

His basic salary places Sir Greg in the top nine earning heads in the country, including chief executives of multi-academy trusts. Including the takings from his private business, called GMG, he is believed to be by far the highest paid headteacher in the country. 

The cross-party panel of MPs said the money generated from Sir Greg operating a leisure and accommodation business from the site of the school should have gone back into the education of the students.

Margaret Hodge, chair of the PAC, said she was “gobsmacked” by the amount of money he was taking home. “You were getting a perfectly good salary, in the top nine in the country,” she said. “That money should have gone to the students ... It’s called doing a public service.”

Sir Greg said that his ability to run a successful business on the side meant that he was able to divert part of the profits into providing benefits to children from poor homes.

“There’s a swimming pool you wouldn’t have had, there’s a boarding school you wouldn’t have had, there’s middle schools you wouldn’t have had, there’s subsidised food, there are small classes. Are you saying that’s wrong?”

Chris Wormald, permanent secretary at the Department for Education, said the department had “concerns” with the set up of the GMG contract.

In a statement issued after the hearing, Sir Greg said he “welcomed the opportunity” to explain how the Durand model works to the panel of MPs. 

“As anyone who has taken the time to visit and understand Durand will know, its success is underpinned by the private investment it receives from the supporting enterprise, London Horizons,” Sir Greg said.

“The school has been given no more funding by the Treasury than any other school, but uniquely it has provided for its pupils subsidised lunches, an after school club at a fraction of the cost of other schools, free swimming, a fully equipped middle school and a boarding school, where children board four nights a week at no cost to parents.

“Not only am I proud of our record, but I believe it is absolutely essential that we don’t discourage innovation like this in the future. For me, it is all about driving aspiration and expanding choice and opportunity for children.”