Margaret Thatcher’s decision to approve suspected child abuser Cyril Smith for a knighthood helped him maintain close ties to children’s services, an inquiry has heard.

The late politician received the honour in 1988, despite knowledge “at the very highest level of politics” about past allegations of his sexual abuse, the Independent Inquiry into Child Sexual Abuse was told.

Evidence hearings have begun at the national probe to examine how Smith was able to allegedly prey on young boys at Cambridge House hostel and the Knowl View residential school in Rochdale, where Smith served as MP from 1972-1992.

But lead counsel Brian Altman QC said the knighthood conferred a “veneer of respectability and power” that afforded influence over child welfare cases at Rochdale Borough Council.

A Lancashire Police investigation into the Liberal MP’s alleged sexual abuse of young boys ended in 1970 when the Director of Public Prosecutions (DPP) concluded it was unlikely to lead to a prosecution. Downing Street was aware of both the investigation, based on accusations from eight boys, and two press reports into Smith’s alleged offending, documents from the time indicate.

Mr Altman said: “I mention this knighthood here for two reasons.

“First, because it demonstrates that the Lancashire investigation and the [Rochdale Alternative Press] article had been considered at the very highest level of politics and seemingly did not prompt more than consideration of the DPP’s decision not to prosecute.

“Second, because it is important to bear in mind the extent to which Cyril Smith continued to involve himself in serious issues related to the welfare of children.

“ A knighthood would only have reinforced Smith’s veneer of respectability and power.”

He pointed to a case in 1991 in which Smith apparently played a key role in removing a child from his family home.

“The child in question had behaved sexually towards his eight-year- old sister,” Mr Altman said.