Blair may still face a public quiz over honours

It has emerged that he could be "compelled" to appear before a Commons panel looking into the propriety of the peerage system.

The Public Administration Committee suspended its own inquiry when the police investigation was launched last year.

But in the wake of last week's announcement that there will be no charges, it has decided to resume it.

It has the legal power to summon anyone apart from MPs and will hear most, if not all of its evidence in public.

Sources confirmed that because Mr Blair is no longer an MP, he would have no choice but to go before the committee if requested.

A public interrogation would be a huge blow to Mr Blair, who is desperately trying to rebuild a reputation tainted by allegations that peerages were exchanged for donations to the Labour Party.

The Crown Prosecution Service announced last week that there was insufficient evidence to mount a case.

But the three figures who featured as principal suspects in the police investigation - Mr Blair's former chief fundraiser Lord Levy, his former Number 10 'gatekeeper' Ruth Turner and Labour donor Sir Christopher Evans - may also be ordered to testify when the PAC picks up where it left off.

Assistant Commissioner John Yates, the Scotland Yard detective who led the investigation, is another witness likely to be called. He is expected to reveal key findings and the lessons to be learned from his 16-month inquiry.

Sources predicted that some of his conclusions will be "deeply uncomfortable" for the Labour Party.

In a statement, the PAC said: "The police investigation has clearly been thorough and exhaustive, and they have had access to material that would not have been available to us."

It added: "Now that the police investigation is concluded, the committee is able to resume its own inquiry. Its purpose is not to continue the police inquiry by other means, but to consider the policy and regulatory issues that arise from it.

"We plan to hold evidence sessions after Parliament returns from its summer recess, and to report by the end of the year."

Liberal Democrat member Paul Rowen said it was "absolutely vital" that Mr Yates be given the opportunity to put his case before the committee.

"While there may not be sufficient evidence for a criminal investigation there are a lot of questions that have not been answered," he said.

The CPS announcement that no charges would be brought followed a £1 million probe that saw four people arrested and Mr Blair interviewed three times as a witness. Lord Levy, Miss Turner and Sir Christopher were among those arrested.

On Sunday it was revealed that police have evidence that Downing Street considered giving peerages to eight of the 12 businessmen who bankrolled Labour's 2005 general election campaign. This is twice as many as had been previously thought.

Sources claimed that Sir Christopher's diaries detail a series of meetings with Lord Levy in 2004 to discuss a peerage.

These two pieces of evidence are understood to have formed the core of the police investigation, which until a few weeks ago officers thought would result in charges.

But the probe was effectively halted on July 4 when a leading criminal barrister, David Perry QC, ruled that the diary was not admissible as evidence.