A statement released this evening following an emergency meeting of the LSE¡¯s council confirms that Sir Howard has stepped down.

The council says it has accepted his resignation ¡°with great regret and reluctance¡±.

It says it has commissioned an independent external inquiry which will be conducted by Lord Woolf, former Lord Chief Justice of England and Wales and former chairman of the council of University College London.

The LSE has been at the centre of an escalating media storm over the institution¡¯s links with Libya.

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According to a report published today in The Times, US diplomatic cables published by WikiLeaks indicate that the university secured a deal to train hundreds of future members of the dictatorship¡¯s elite.

The latest revelations follow controversy over a ?1.5 million donation to the LSE by the Gaddafi International Charity and Development Foundation in 2009 and allegations of plagiarism over sections of a PhD thesis completed at the LSE by Saif Gaddafi, the son of Libyan leader Mu¡¯ammer Gaddafi.

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The Times also reported that Sir Howard had admitted that a fee was paid to the university in return for his advice to Libya¡¯s sovereign wealth fund on how to invest the country¡¯s oil billions.

The LSE¡¯s statement says the council has suggested that Lord Woolf should investigate the following issues:

? The agreement to accept a ?1.5 million donation from the Gaddafi International Charity and Development Foundation in 2009 to LSE Global Governance, ?300,000 of which has been received to date.

? The acceptance of $50,000 (?30,700) paid to the university in return for Sir Howard¡¯s advice to Libya¡¯s sovereign wealth fund in 2007

? The academic authenticity of Saif Gaddafi¡¯s PhD thesis, awarded in 2008

? The agreement of a ?2.2 million contract between LSE Enterprise and Libya¡¯s Economic Development Board to train Libyan civil servants and professionals, ?1.5 million of which has been received to date, and payment of ?20,000 for tuition of the head of the Libyan Investment Authority

? The acceptance of an award from the Gaddafi International Charity and Development Foundation of ?22,857 to support travel costs, mainly airfares, for academic speakers to travel to Libya

The statement says that LSE staff had co-operated with an investigation of an allegation of an assault during a protest at the LSE on 25 May when Saif Gaddafi visited the school to make a speech in an incident involving one of Gaddafi¡¯s associates and a protester.

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The council will also carry out its own investigation of the administration of LSE Global Governance.

Sir Howard said: ¡°I have concluded that it would be right for me to step down even though I know that this will cause difficulty for the institution I have come to love.

¡°The short point is that I am responsible for the school¡¯s reputation, and that has suffered.

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¡°I advised the council that it was reasonable to accept the money and that has turned out to be a mistake. There were risks involved in taking funding from sources associated with Libya and they should have been weighed more heavily in the balance.

¡°Also, I made a personal error of judgment in accepting the British government¡¯s invitation to be an economic envoy and the consequent Libyan invitation to advise their sovereign wealth fund.

¡°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.¡±

Sir Howard took up the post of director of LSE in 2003.

His former roles include the deputy governorship of the Bank of England, and three years as director general of the Confederation of British Industry.

From 1987 to 1992 he was controller of the Audit Commission.

During the 1980s he worked for the global consulting firm McKinsey & Company and was seconded to the Treasury as special adviser to the Chancellor of the Exchequer.

Peter Sutherland, chairman of the Court of Governors at LSE, said: ¡°Howard has been an outstanding director of the LSE these past eight years and his achievements here will endure long after the current controversy has died away.

¡°We accept his resignation with great regret and reluctance but understand that he has taken an honorable course in the best interests of the school.¡±

The council and Lord Woolf have agreed the following terms for his inquiry: ¡°An independent inquiry to establish the full facts of the school¡¯s links with Libya, whether there have been errors made, and to establish clear guidelines for international donations to and links with the school. Lord Woolf is to make recommendations to the LSE council as soon as possible. He is to have total discretion as to how he conducts the inquiry, and as to the matters on which he is to report.¡±

rebecca.attwood@tsleducation.com