By Simon Miller

Last night, it was announced that the Forfeiture Committee had recommended that Fred Goodwin should lose his knighthood as a result of his actions as chief executive of RBS.

The committee decided that Goodwin had brought the honours system into disrepute after the collapse of the bank which led to the government injecting £45.5bn into RBS and taking an 80% stake in the company.

In a statement, the Cabinet Office commented: "The scale and severity of the impact of his actions as CEO of RBS made this an exceptional case...In reaching this decision, it was recognised that widespread concern about Fred Goodwin’s decisions meant that the retention of a Knighthood for “services to banking” could not be sustained."

Speaking to the BBC, Alistair Darling - who was Chancellor of the at the time of the bailout - commented: "I'm not here to defend Sir Fred... I just think we're getting into awful trouble here if we go after people on a whim and we don't have a clear set of principles against which we can judge people, it's not right."

However, former trade minister Lord Jones warned that the move bordered on a witch hunt.

He told reporters: "I think there is the faint whiff of the lynch mob on the village green about this, but that isn’t to say that the end result isn’t what is right."

The stripping of the knighthood comes just days after current RBS chief executive Stephen Hester turned down a £1m bonus after pressure from politicians.

As a result, the government's holdings in RBS fell by £900m after shareholders took fright with percieved political interference.

There is now concern in the City that politics is hampering any signs of a recovery with the Institute of Directors warning that politicians were creating creating "anti-business hysteria" over the matter.

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