Richard Heller: It’s a dishonourable system that gave Fred his knighthood in the first place

The newly-created mister was arrogant and incompetent. His bad decisions destroyed people’s jobs and savings and cost the taxpayer billions of pounds. But the same is true of other bankers who have kept their honours and pensions. Mr Goodwin was singled out as the poster boy of bad banking.

In disgracing him, David Cameron has behaved like a mediaeval monarch sacrificing an unpopular minister to appease his restive subjects.

Mr Goodwin has been spared a public execution before a jeering mob, but his treatment has a similar purpose. Will public feeling be satisfied by the simple announcement of his demotion? Or will it need some visible expression, in the form of a Divestiture Ceremony? Mr Goodwin would be dragged back to the Palace and smacked with a rusty sword behind the arras. His insignia would be torn from him as the newly-appointed Divestor Herald Extraordinary, Lord Sugar, intoned the solemn syllables of shame: “You’re mired!”

Some such ceremony may soon be necessary, if the Goodwin case becomes a precedent.

Until now, it has been very unusual for honours to be removed. Several foreigners have lost honorary knighthoods for making war against the Crown (Mussolini and Hirohito, who got his back again) or for becoming a serious embarrassment (Robert Mugabe).

The odious Nicolae Ceausescu of Romania, honorary Knight Grand Cross of the Order of the Bath, lost his title only a day before his execution. Was the Foreign Office worried that he would stage a comeback? Roger Casement lost his knighthood for rebellion, Anthony Blunt lost his for treachery.

More recently, two criteria have been established for forfeiture of an honour. One is drawing a prison sentence of three months or more. The boxer Prince Naseem Hamed, from Sheffield, lost his MBE after his driving conviction, and Lester Piggott’s OBE was a casualty of tax evasion. The other is being disqualified by a professional body.

These criteria had the merit of certainty. Neither applied to Fred Goodwin. He has not been found guilty of any offence and he has not lost any professional qualifications, for none were ever required of him: any damn fool is allowed to run a bank. He was condemned in his absence in a secret meeting of an almost unknown committee, because he had caused public outrage.

If the Forfeiture Committee chooses to act on those grounds, or is pushed into it by politicians, it will become a genteel version of a lynch mob and no honoree will be safe. Perhaps it will turn on the England cricketers who were honoured as Ashes heroes and who are now derided as desert dimwits.

The Committee consists entirely of public servants, a class whose acquisition of honours and pensions and lucrative positions after retirement is rarely, if ever, impeded by error or failure. Fred Goodwin might have been a bad banker, but what about the public servants who were supposed to regulate and control him? Are they to lose their orders and knighthoods? How about the honoured public servants who squandered billions on the failed NHS IT system, or ID cards, or bungled defence procurement – or those who were wrong or weak in the run-up to the Iraq war?

Public anger should prompt the Forfeiture Committee to look at politicians – but conveniently they are excluded from its remit. It cannot recommend removal of a Privy Councillorship or take action against a peer, even a criminal one. Jeffrey Archer still has a writ of summons from the Queen, importuning her right trusty and well-beloved to offer her counsel in the House of Lords.

The Goodwin disgrace is an empty gesture. It will not restore any of the jobs which he shredded or any of the wealth which he shrank. It will do nothing to improve the operations of Britain’s banks. It will not even improve the Honours system, which will remain cosy and secretive, and open to political and financial influence.

Instead of being outraged that Fred Goodwin kept his knighthood, we should ask why he got it in the first place. He was vastly paid for doing a highly desirable job with a high public profile (many talented people would have done it for far less). Why did he need a title on top?

Too many honours are dished out to people like him – for doing their job. They should be reserved for people without reward or recognition who have made a real difference in work or voluntary activity to the lives of others.

However, if rich and powerful people continue to crave honours, we could invent a new order for them, just as James I created the baronetcy to raise cash.

Alternatively, the DVLA could auction titles and distinctions alongside cherished number plates. In either case, all proceeds would go to the Treasury to reduce the deficit.

This would be a new form of VAT: Vanity Added Tax.

* Richard Heller is an author, journalist and former adviser to Denis Healey.