John Yates, deputy assistant commissioner of the Metroploitan Police, insisted to MPs yesterday that his decision to arrest Lord Levy had not been theatrical. Even so, it was certainly dramatic and not a little strange. Even Mr Yates conceded that there was no evidence that Lord Levy was seeking to withhold information from him but contended that the arrest of the peer simplified procedure. This is an odd assertion. Then again, this is a bizarre case, with the police and the House of Commons Public Administration Committee in competition for control. As a by-product of this, Mr Yates revealed that he had questioned 48 people and implied that more would be contacted.

Yet for all the drama, there remain serious doubts about whether a prosecution would or could be mounted. The legislation involved is woefully vague. The Honours (Prevention of Abuse) Act 1925 contains just three clauses, requires an explicit trade between an “inducement or reward” and a “grant of a dignity or title of honour” and makes no reference to political parties. The Political Parties, Elections and Referendums Act 2000, meanwhile, concedes that loans to parties do not have to be declared provided they are “commercial” and then does not outline what commercial is. Defining the law, never mind deciding whether it has been broken, will be a challenge.

Yet in a sense this is all superfluous. The absence of a trial would not mean that what Labour (or the Opposition) did before the last election was ethical. It is an open secret that those who are determined to be nominated for a political honour can advance their chances hugely if they offer big sums to a party. This bargain is not explicit: it does not need to be. Business is conducted semi-telepathically. It is a practice that has taken place under both the major political parties (and the Liberal Democrats have not been whiter-than-white either) for a very long time. The letter of the 1925 Act might as well be written in Swahili.

And it is a practice that stinks. It is utterly demeaning to every person and every institution concerned. Many of the wealthy businessmen are admirable souls, extremely successful in their fields, charitable in their private lives and a potential asset to the second chamber. Yet they can find themselves drawn into a squalid auction. It is a system that has to be reformed.

The Prime Minister must appreciate by now that he made a profound error by permitting Labour to raise addi-tional funds via loans and then not insisting that the supporters involved declare those loans to the Electoral Commission and the Lords Appointments Commission. This was a folly that he probably acceded to in five minutes flat, with other seemingly far more important issues pressing on him, with little or no thought about the potential disadvantages of it. Yet the affair has tarnished his reputation, humiliated his chief fundraiser, embarrassed affluent admirers and damaged the standing of his party.

This saga is, ultimately, political and not legal in character. Tony Blair would be well advised to volunteer what part he played in proceedings (and not wait for Mr Yates to call on him), admit that it was an abysmal mistake, assume full political respons-ibility and take additional steps to ensure the integrity of the process of appointing peers. This is a matter of honour as much as honours. It is time for personal honour to be restored.