The childcare watchdog has admitted withholding crucial evidence that could potentially hand Sharon Shoesmith, the former head of children’s services at Haringey Council, hundreds of thousands of pounds in compensation.

Ms Shoesmith was sacked after a damning Ofsted report into how her department was run in the aftermath of the Baby P case.

A High Court judge has taken the extraordinary step of reopening her case so dozens of pages of handwritten notes, e-mails and draft reports can be examined.

Mr Justice Foskett also ordered Ofsted to pay for all extra legal costs incurred at the penal “indemnity” rate — a bill that could cost taxpayers £50,000.

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Ofsted issued a humiliating apology for its handling of Ms Shoesmith’s legal challenge, admitting a “serious and deeply regrettable error”.

The latest unexpected twist in the case of Baby Peter, the 17-month-old boy who died from repeated abuse, has placed in doubt Ofsted’s competence to oversee child protection.

Last month Ms Shoesmith launched judicial review proceedings against Ofsted, Ed Balls, the Children’s Secretary, and Haringey Council over her dismissal from the £130,000 a year job after the Baby Peter tragedy.

She accused Mr Balls of putting pressure on Haringey to sack her with no compensation after a media campaign. Her lawyers have argued that a devastating Ofsted report used by Mr Balls and Haringey to justify their actions was deeply flawed and failed to follow proper procedures.

That hearing ended a month ago and all parties were expecting the judge to make his ruling this week.

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