FOR 21 years Des Smith has been at the helm of one of London’s most difficult schools, transforming it from a “depressed and violent” institution into a well-regarded establishment praised by local and national politicians.

The veteran head teacher’s experience of raising education standards in difficult circumstances made him an attractive choice to No 10 as someone who could help to drum up support for the Government’s cherished city academies.

It appears, however, that he may have taken his brief too far. In January Mr Smith, 60, the head teacher of All Saints Catholic School and Technology College in Dagenham, who is three months from retirement, made incautious remarks to an undercover reporter. He suggested that donors to Tony Blair’s policy could expect honours, including peerages, in return for their money.

Yesterday, soon after 8.30am, Mr Smith was led out of his semi-detached house in Wanstead by plain clothes policemen. He was taken in an unmarked car to a London police station, the first person to be questioned by police in the cash-for-honours investigation. He was released on bail ten hours later.

The implications of his arrest stretch far beyond the gates of his 1,100-pupil school, where council officials say he will remain in charge for the time being. Police questioned him about the remarks he made in the Fishmarket restaurant in a Liverpool Street hotel. It was here, after several glasses of champagne, that he spoke to “Claire”, an undercover Sunday Times reporter who claimed that she worked for a potential city academy donor.

The meeting was the culmination of nearly two months’ work. Mr Smith, an adviser to the Specialist Schools and Academies Trust, which raises money for the schools project, had been trying to woo the “wealthy financial entrepreneur”, known as “Andrew”, whom “Claire” said she represented.

Mr Smith had been deputed by Sir Cyril Taylor, the head of the trust, to carry out negotiations. Mr Smith would make a good “project director”, he told the reporter, because he was “a professional who knows all the buzzwords [and who] can deal with officials”. This crunch meeting took place on January 13, at the Great Eastern Hotel. Mr Smith is alleged to have outlined an unofficial tariff for people willing to give money to the scheme. “The Prime Minister’s office would recommend someone like [Andrew] for an OBE, a CBE or a knighthood . . . They call them ‘services to education’.”

Mr Smith seemed even more confident of a reward if the donor were willing to give as much as £10 million. “You could go to the Lords and get a lord . . . become a lord,” he said.

Asked what the chances of a peerage were if her boss invested in five city academies over a ten-year period, Mr Smith replied: “A certainty.”

When the remarks were published two days later, there was a huge furore, with David Willetts, the Shadow Education Secretary, saying that the honours system should not be used to buy support for government policies.

Sir Cyril called Mr Smith’s claim outrageous, and he was sacked from his position as adviser to the trust. Mr Smith apologised but did not deny what he was reported to have said. “I have been shattered by this experience. I was naive. I shouldn’t have said what I did. I am desperately sorry,” he told journalists.

Downing Street said that it was nonsense to suggest that honours were awarded for giving money to an academy, and waited for the story to die down.

There was one small crumb of comfort for them, however: Sir Cyril did not fall into the same trap as Mr Smith.

He also met the undercover reporter in midDecember at L’Oranger, a small restaurant in Pall Mall, where, over a bottle of Pouilly Fumé, Sir Cyril said that he had been decorated not once but twice for his services. Unlike Mr Smith, however, he firmly denied that donors to the scheme would be decorated.

Last night local figures rallied around Mr Smith. Jon Cruddas, the Dagenham MP, who described himself as a close friend of Mr Smith, said that he had been an outstanding public servant. He added: “I have worked very closely with him as the local MP and he has made an outstanding impression as a public servant over the past 20 years. He has been brilliant.”

• The source of all political loans bigger than £5,000 should be publicly declared within three months of the money changing hands, the Electoral Commission said yesterday. During an election period, the benefactor’s details should be published weekly, the advisory body said.

  Cash from foreign lenders should be rejected, it added in a new draft code hastily drawn up after the secret loans scandal. The code will be voluntary for now but is expected to be incorporated into the Government’s Electoral Administration Bill to bring the rules for loans in line with those for donations.

  LOANS BY NUMBERS
  
  £14m amount Labour revealed last month that it had received in loans before the last general election from 12 wealthy benefactors
  
  £21m amount the Conservatives admitted receiving in loans before the last election
  
  £400,000 amount the Liberal Democrats received, but all were declared to the Electoral Commission

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