'Cash for honours' arrest may hurt academy funding

The Government is struggling to preserve the credibility of Tony Blair's flagship city academy schools following the arrest of a former key adviser on the scheme.

MPs warned that the Government could fail to secure its goal of increasing the number of academies from 27 to 200 by 2010 after police investigating "cash for honours" allegations arrested headmaster Des Smith. He resigned from the Specialist Schools and Academies Trust (SSAT) this year after telling a newspaper that people helping to fund the schools could be recommended for honours including peerages.

As the implications of Mr Smith's arrest sunk in, even Blair loyalists admitted the high-profile Metropolitan Police inquiry could deal a severe blow to efforts to recruit financial backers for city academies.

Ministers are also worried that the publicity could fuel the Labour rebellion against Mr Blair's plans to set up independent trust schools, which could also forge links with private-sector partners.

Debate on the Education Bill will resume when MPs return from their Easter break on Tuesday.

Alan Beith, Liberal Democrat chairman of the Commons Constitutional Affairs Committee, said wealthy people would think twice about backing government schemes like city academies in case they became embroiled in controversy.

David Chaytor, a Labour member of the Commons Education Committee, said the affair had raised significant questions about the accountability of the academy programme. He said Mr Blair's desire to push through his education reforms as quickly as possible may lead to "the cutting of some corners".

He added: "Certainly the model whereby it is one individual buying a significant amount of influence for £2m, I don't think is acceptable."

Tom Bentley, director of the think-tank Demos and a former government education adviser, said: "I think probably the Government hasn't been careful enough. One of the things that this policy has done is to create huge pressure on the organisations involved in raising sponsorship to find new sponsors and get the projects up and running as fast as possible."

Mick Brookes, general secretary of the National Association of Head Teachers, which supports city academies, said the whole programme was now in question. "I think we need a series of discussions as to whether this has a viable future," he said.

But Bill Rammell, the Education minister, insisted the academies had raised standards in some of the poorest parts of the country. He said backers could be considered for an honour but "there is certainly no guarantee and nothing we have done would suggest that that is the case".

While the SSAT advised on potential sponsors, Mr Rammell said that the final decision rested with the Department for Education and Skills and sufficient safeguards were in place.

The Metropolitan Police, who released Mr Smith on bail, refused to comment on reports that detectives were preparing to interview 12 wealthy Labour supporters who secretly lent the party £14m. They are also expected to quiz car importer Robert Edmiston - who lent the Conservative Party £2m and was blocked by the Lords Appointments Commission along with four of the Labour lenders.

A police source said: "This is a high-profile inquiry and everyone will be watching, so we are going to be very thorough and question all the main players involved."

Senior officers are anxious to avoid the inquiry being seen as a whitewash - a view that could explain their decision to arrest Mr Smith. They insist his claims were a natural starting point for their investigation.

However, police and government ministers believe privately that the inquiry may not result in any prosecutions unless an unlikely "paper trail" linking cash to honours is uncovered.

A Labour briefing note for figures including Mr Blair, ahead of the launch of the party's local election campaign, said of the police inquiry: "We are confident nothing will flow from that."