Leading article: We must have a fully elected House of Lords

The best way to ensure that British politics can never again be disfigured by the suspicion that some of those with the power to frame our laws have purchased their places in the upper house of Parliament would be a wholly elected House of Lords. The day before Carmen Dowd, head of the special crimes division of the Crown Prosecution Service, announced that there would be no charges in the cash-for-honours case, Jack Straw, Secretary of State for Justice, announced plans for a four-fifths-elected upper house after the next election. What, we are bound to ask, about the other fifth?

But, first, the police investigation. That it took place at all was a triumph for the rule of law and, regardless of the outcome, the deterrent effect will make British politics if not "purer than pure" at least purer than it might otherwise have been. It should be a source of pride that the police decided to investigate a serious allegation of corruption, knowing that this might eventually lead them to knock on the door of No 10.

The fact that Tony Blair was interviewed by the police three times was less a humiliation for him than an illustration that, as the CPS put it, "the criminal law of England and Wales applies to every citizen alike, regardless of his or her political affiliation or official status".

The Independent on Sunday accepts Ms Dowd's decision. It is, as several of those formerly under suspicion in this case said last week, a relief that the law has not been broken. But Mr Blair does not emerge from the affair vindicated. The former Prime Minister was never a formal suspect in the case: he was interviewed on each occasion as a witness and not under caution. Yet his were the decisions that brought down the cloud of suspicion on his former aides and advisers. He was ultimately responsible for the "terrible, even traumatic time" through which he said that they went.

Of course, it was important that the allegation of the sale of honours was thoroughly investigated. But the facts of Mr Blair's conduct that were known before Angus MacNeil MP referred the matter to the police were damning enough.

The police investigation was not primarily into Mr Blair's conduct but that of those around him. By exonerating them, the police and the CPS do nothing to diminish Mr Blair's original offence, which was not against the law but against the ethics of conduct in public life.

What Marie Woolf, our political editor, reported in the story that started this saga in October 2005, was that Mr Blair was seeking to elevate to the peerage a group of four rich men who had donated – and declared – money to the Labour Party. We subsequently discovered that all four had also secretly lent larger sums of money – a total of nearly £5m between them. This was a fact that the Prime Minister's office concealed from the House of Lords Appointments Commission, which scrutinises nominations.

It was a disgraceful attempt not simply to reward people who had given Mr Blair's re-election campaign substantial financial support but to conceal what he was doing. Thus Mr Blair was guilty not merely of operating the traditional system of winks and nods – after all, there has been a correlation between financial help for parties and the awarding of honours ever since the explicit sale of baubles was banned in 1925. He was also guilty of arrogant hypocrisy. He had changed the law to require donations to be disclosed, and then exploited a loophole in his own Act that excluded "commercial" loans from its requirements. All that trashing of his own reputation as a "pretty straight sort of guy", in other words, for no gain. He got the money – at the price of saddling the Labour Party with £25m of debt. And the lenders did not even get their seats on the red leather benches.

The quality of British democracy has gained from this unedifying episode. Loans are now declarable, even if the cynics say that new ways will be found to get round the rules. Gordon Brown and David Cameron will be more scrupulous about where their parties' money comes from if they think the police might come knocking, and donors will be more cautious. But how long will such an effect last? And there is a structural problem still to be solved, which is the composition of the House of Lords. Although Mr Brown's "appointments of all the talents" to his Government through the upper house have individually been welcome, there is something not quite right about the parachuting in of ministers of the Crown into a legislative assembly.

Mr Brown has made a terrific start as PM, but his reforms of the House of Lords will need to achieve a lasting improvement in the ability of the British political system to resist the purchase of power or influence.

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