The pro-paedophile group Paedophile Information Exchange (PIE) was not funded by the Home Office, an internal investigation has concluded.
The controversial group, which was prevalent in the 1970s and 1980s, campaigned to lower the age of consent to just four and legalise sex between adults and children.
In a speech today the Home Secretary Theresa May said: "A Home Office investigation has concluded that the department did not fund Paedophile Information Exchange (PIE)."
The Baroness says she did not consider the "difficulties" caused by her background and family connections to the child sex abuse inquiry.
Questions have been raised of former High Court judge Baroness Butler-Sloss since her appointment last week.
22 police officers are now assigned to Operation Fernbridge - the probe into claims of a Westminster cover-up of sex child abuse.