Head of LSE resigns for accepting £1.5m donation from leader's son

Sir Howard Davies resigned as director of the London School of Economics last night after accepting that the university's links to the Gaddafi family had damaged its reputation.

He said it was "a mistake" to advise the LSE's council to accept £1.5m research funding from a foundation controlled by Colonel Muammar Gaddafi's son, Saif, and that it was in the university's best interests that he go.

But he maintained that while mistakes had been made the decision to take the money and to offer training programmes in Libya were reasonable and justifiable. And he insisted that there was no evidence to show anyone had acted improperly.

"The short point is that I am responsible for the school's reputation, and that has suffered," he wrote in his resignation letter. "I believe that the decisions we have made were reasonable, and can be justified. The grant from the foundation was used to support work on civil society in North Africa, which will have value in the future. The training programmes we have run in Libya will also prove valuable in enhancing the practical skills of many people who will be needed under whatever successor regime emerges.

"But however laudable our intentions, in the light of developments in Libya the consequences have been highly unfortunate, and I must take responsibility for that. I advised the council that it was reasonable to accept the money, and that has turned out to be a mistake."

The independent inquiry into the LSE's links to Libya will be conducted by Lord Woolf, former Lord Chief Justice of England and Wales. Among the issues it will consider are the £1.5m funding promised in 2009 andthe £30,000 fee paid to the university for financial advice. It will also look at the £2.2m contract between LSE and Libya's Economic Development Board for which £1.5m has so far been handed over for the training of Libyan civil servants and professionals.

Only £300,000 of the £1.5m from the Gaddafi International Charity and Development Foundation has been passed to the university so far and half of it has been spent on research into civil society and democracy in North Africa. An independent inquiry into the links between the LSE and Libya has already been announced.

Saif Gaddafi studied at the LSE for several years being awarded an MSc followed by a Phd. The doctorate was awarded in 2008 and the deal to offer £1.5m to support research was signed the following year.

Sir Howard also admitted in his letter of resignation to "a personal error of judgment" for accepting an invitation by the British Government to be an economic envoy and for travelling to Libya to advise officials on how to modernise their financial institutions.

"There was nothing substantive to be ashamed of in that work and I disclosed it fully, but the consequence has been to make it more difficult for me to defend the institution," he said.

Earlier this week he said he felt "embarrassed" at having described Saif Gaddafi, who in recent days vowed to defend his father's regime "to the last bullet", as the acceptable face of the dictatorship.Anger over the LSE's links to the Libyan regime were further inflamed when it was claimed Saif Gaddafi plagarised parts of the theseis he presented for his Phd. The university is investigating the allegation.

Peter Sutherland, chairman of the court of governors at the LSE, said Sir Howard's resignation was accepted "with great regret and reluctance" and that it was offered as "an honourable course in the best interests of the school". He praised the outgoing director's work as outstanding.

Sir Howard, who held his post at the LSE for eight years, will remain in place until a sucessor can be found. He is a former head of the Financial Services Authority and deputy governor of the Bank of England.