We can't simply ignore this breakdown in trust

John Yates observed that he had been treated as a "political problem" when he descended on Downing Street to investigate the affair. That should not have surprised him as much as it appears to have done, given that he was dealing with the inner circle of the political class.

A large dose of denial still prevails on all sides here. For sworn enemies of the Government, it is unthinkable that any investigation into alleged wrongdoing should end without a clear "guilty" verdict. In their frustrated dreams, Tony Blair would be spending his retirement, not speechifying at the Waldorf Astoria, but consulting with his defence lawyers.

On the other side, a sullen defiance reigns in Government. It does not really believe that it acted any differently from previous regimes in according honours to donors - the Lords is, after all, stuffed full of people who opened their wallets for the political parties. Some have other virtues to recommend their elevation. Others would not be there were it not for their financial contributions. The leaks and manner of Yates's investigation still rankle.

But the House of Lords is not just a bauble. It is a vital part of the British constitution and has been an increasingly important check on trigger-happy lawmakers. That is why it does matter who gets in there and how. It is also the reason the 1925 Peerages Act was conceived under Stanley Baldwin in the first place - in the wake of Lloyd George's cavalier abuse of peerages. If we had forgotten this, then all the better to be reminded of it.

I suspect the Inspector underestimated how hard it would be to prove that honours were sold - in the sense of a transaction, where a price is named and an honour follows. The process of some recommendations unveiled in this procedure came very close to that.

Meetings were held in Downing Street to discuss donor lists and honours. One donor scribbled diary notes about the going rate. A hapless education placeman boasted that supporting academies could pave the way to an honour: not entirely unlikely, since Tony Blair had made his old friend and donor-recommender Lord Levy. Either they were all fantasists - or something was amiss.

It took an outsider in the form of a young Scots Nationalist to point out that the matter should be investigated as a criminal offence.

Like Tony Wright, the Public Administration Committee chairman, I was not remotely surprised to find that the affair yielded no charges. The Inspector had little evidence or a single prima facie "sale" which would inspire the CPS to take the considerable risk of a prosecution.

All he really had to go on was "a question from a Scots Nat and a pile of newspaper clippings", as Mr Wright drily put it yesterday. The lines between cultivating donors and an honours deal was always left deliberately unclear.

If Mr Yates goes away feeling bruised, the lasting damage is to the Government - it has not receded now that Mr Blair has gone. Indeed, few weeks pass for Gordon Brown without some Banquo of his predecessor's years shaking gory locks from beyond the grave.

I switched yesterday between the proceedings of the Public Administration Committee and the Commons debate on the mismanaged Scottish election of 2007. Together, they offered a gloomy insight into the state of the political drains.

In the case of the Scottish vote, a parliamentary investigation concludes, the "interests of the voters came last" in the calculations of how to run two elections on one day (badly, as it turned out).

When it came to alloting peerages, the Government that promised to be "whiter than white" was as murky, at the very least, as anything that went before.

It deserved to be put through the public mangle on grounds of cynicism alone. Mr Blair (and Mr Brown) knew that in the wake of "Tory sleaze" there was an appetite for change. They were not - like Trollope's dazed Warden - caught out by a sudden shift of public morality of which they were unaware. They knew the score - and even set about reforming the Lords. To continue with the twilight practice of honours linked to donors in these circumstances was inviting a comeuppance.

How many debates and reports do we have to endure about lack of faith and engagement in politics before its senior practitioners understand that their own behaviour might have something to do with it?

I am apt to defend politicians from the accusation that they are uniquely lazy, terrible or incompetent. But one perception which they routinely underestimate is how much they have become a law unto themselves - and how much people dislike them for it. By their own admission, their word now means very little. Mr Blair talks of "cleaning up the honours system" and ends up embroiled in donations masquerading as loans and donors; Mr Brown approves a referendum promise on the EU constitution - and then overturns it on some technicality.

Neither is this one-party malaise. It is certainly advantageous for the Tories to have their tycoon treasurer Michael Ashcroft decanting large sums of money into target constituencies before an election is called - thus evading the funding rules to limit expenditure. It is just another way of getting around the rules and they would object to it (rightly) if Labour had got to the trick first. The apple-pie Lib-Dems also took money from a dodgy donor, without stopping to ask where it came from.

The worrying thing about all this is that in great part, those on the inside really don't see the problem - or if they do, they score it off against the other side having worse trouble of the same sort.

God knows how the Electoral Commission, that dormouse of an organisation, sleeps through such things, but it does. It should be rooting out malpractices, rather than being routinely surprised by them. It needs to be restaffed, reformed - and issued with a set of teeth as a matter of urgency.

Democratic politics is about getting and keeping advantage, as well as the nobler bits. So we can hardly be surprised when loopholes are exploited and unwritten rules broken in the fray. Yet it also thrives on the understanding that those we elect are not only out to escape due scrutiny.

So the next time you hear any one of them talking about the importance of restoring trust, please do feel free to remind them who lost it in the first place.