Pizzas galore!

In the previously unpublished recordings, Smith claims the businessman — also an undercover reporter — should seek a recommendation for a knighthood by targeting Miliband, who he claimed was a “mate”.

Smith: “Miliband is going to be the next leader after Blair.”

Reporter: “Really?”

Smith: “Oh yeah.”

Reporter: “So you think if Malcolm [the bogus businessman] got involved with him, he’d probably recommend him for a knighthood as well?”

Smith: “I would say to Malcolm, ‘Let’s go for Miliband’.”

Miliband, now in the cabinet, declined to comment. The minister is understood to have met Smith but would not consider him “a mate”. He is said to be confident he can demonstrate he has never nominated anyone connected to city academies.

It emerged this weekend that Blair recommended two multi- millionaire businessmen — Sir David Garrard and Barry Townsley — for peerages on the basis of their sponsorship of academies.

A Downing Street insider said the prime minister’s recommendation for Garrard’s peerage referred to his commitment to education. Blair hoped Garrard, who sponsored the first academy, would become a “cheerleader” for his flagship project in the Lords.

He praised the businessman’s “vision and dedication” to the school he sponsored in southeast London, the insider said.

Garrard, who also secretly lent the Labour party £2.3m, was blocked by the Lords Appointments Commission, which vets potential peers.

The Downing Street source said: “Garrard was working eight to 10 hours a day on his academy — it was a total passion for him. Blair was so impressed he thought he would be a real asset in the Lords.”

Garrard and Smith were unavailable for comment.

At least eight sponsors of the 27 academies have received knighthoods, OBEs or CBEs. Two of them — Garrard and Townsley, a stockbroker — were nominated for peerages last year but were later blocked. Townsley also secretly lent Labour £1m.

It is understood Townsley, like Garrard, was nominated largely because of his academy sponsorship. It was hoped he would become an advocate of the policy in the Lords.

This weekend Downing Street began a campaign to defend the use of honours to reward academy sponsors. “We want to celebrate the fact they have done this,” said a source.

Another senior Blair aide added: “Successful people are being beaten up and it will be horrendous if they stop donating to good causes.”

Scotland Yard is understood to be seeking internal government correspondence from the Specialist Schools and Academies Trust, which recruits sponsors. Officers are trying to ascertain if honours have been offered to woo backers. Sir Cyril Taylor, its chairman, said he was preparing a statement to hand to officers this week.

Lord Levy, Blair’s chief political fundraiser, is president of the trust, a post he is coming under pressure to resign. Downing Street sources said he had not undertaken any fundraising for academies recently, adding: “Lord Levy has had enough. At the moment he doesn’t really want to raise money for anything other than charity.”

The peer is determined not to be a scapegoat in the scandal. The Sunday Times revealed last month that, according to friends, he was against the secret loans to Labour and that it was “all Tony’s idea” to save the party from bankruptcy.

Levy has yet to be interviewed by police. If officers do extend their questioning to Downing Street, other figures likely to be interviewed include Jonathan Powell, Blair’s chief of staff. Baroness Morgan, formerly the prime minister’s main “fixer” at No 10, may also be interviewed.

Meanwhile, a member of a Whitehall committee that draws up lists of those to receive honours for charity work said it had rejected several academy sponsors put forward by the education department. Stephen Bubb, chief executive of the Association of Chief Executives of Voluntary Organisations, said: “There was nothing else about them, apart from the academies, to support their nominations.”

• Former independent MP Martin Bell has called for Tony Blair to suspend all appointments to the Lords until the “cash for honours” scandal is resolved.

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