Clear rules must be established to stop the Government giving in to "media storms" and unfairly stripping individuals of their honours, a committee of MPs says today.

In a report on the honours system, members of the Public Administration Select Committee said the case of Fred Goodwin, the former RBS chief executive who was stripped of his knighthood following a newspaper campaign, had discredited the process. It called for the creation of an independent "forfeiture" committee to decide if individuals were no longer deserving of honours.

The committee also recommended ending the practice of awarding honours to high-ranking civil servants and sports personalities for just "doing the day job". It suggested awarding more honours to ordinary members of the public to acknowledge commitment to local communities, and ending the Prime Minister's power to recommend people for honours – in response to criticisms the process is used for political gain. It further urged the publication of longer explanations as to why individuals receive their awards.

Bernard Jenkin, chair of the committee, said "Few people understand how or why honours are awarded, which does nothing to help bolster confidence in the system."