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Thanks for the reply Barmaid. Basically, he was paying me £200 per month for a couple of months whilst working but also spending all his wages within about a week and then asking me for more money which I could barely afford to give him, although I did do so.
We had a conversation and he said that he would like help to manage his finances and that if he paid his wages into my account, would I pay for everything and then he could be sure it would last him. I agreed that this was okay and that I would pay all his bills such as mobile phone etc out of my account, which I did, and that I would also buy his clothes (with him of course) and any other things that he needed, such as books for college, toiletries etc and give him spending money, travel fares etc. At no time did I say to him that he should give me his money and then I will repay it back to him at some later date - why would I do this?
Now he's sofa surfing and desperate for money and saying that our agreement was that I would pay back the money to him at some point in the future and since I don't want a relationship with him, before we break off contact I should give him either £7700 as a lump sum or £500 per month starting in January 2013 and if I don't give him this money then he will contact my bosses with alleged impropriety which he says (and I quote) "I'm not particularly bothered if I'm honest, I just want this money and if nothing is heard back within the next 14 days I shall be taking legal advice on this matter and that would just be an inconvenience to all involved and may have upsetting consequences for you such as you losing your job". He also says that "if I had refused to pay more, I would have been removed from the household and I believe that if I wasn't forced to work then I wouldn't have messed up my education at college and my life would be better that it is now".
He worked whilst studying for his A levels but he had failed them prior to getting a job, was self harming and abusing drugs and alcohol and I begged him to give the job up on more than one occasion to focus on his studies. He ended up failing his A levels, started a different course, then bearing in mind that he walked out (wasn't thrown out of home but left of his own volition) 3 months into the course, you would hope he would do better if the job (by then history) was holding him back but he was subsequently asked not to return to the college to finish the second year because of his "attitude" problems at college (and this is a college renowned for taking in people who seriously need a fourth or fifth chance).