Scotland Yard today confirmed that a 60-year-old man had been arrested under the Honours Act, but has not named him. Several news organisations have identified him as Mr Smith, head of All Saints Catholic School and Technology College, in Barking and Dagenham.
Police said the man was arrested in Redbridge by the Specialist Crime Directorate and is currently in custody in a London police station.
On Monday a list of new working life peers was published, which omitted four wealthy businessmen originally nominated by Tony Blair. They were blocked following intervention from the House of Lords Appointments Commission.