Former Prime Minister Tony Blair yesterday welcomed the decision not to prosecute anyone over the cash-for-honours allegations which dominated his last year in power - saying he always expected the inquiry to end this way.

The police investigation into the alleged sale of peerages ended yesterday after 16 months and about £1m in costs with an announcement from the Crown Prosecution Service that there was insufficient evidence against any suspect to secure a conviction in court.

Mr Blair, who was questioned three times by police as a potential witness, said he was very pleased that no one would face trial.

"Those involved have been through a terrible, even traumatic time," he said.

"Much of what has been written and said about them has been deeply unfair, and I am very pleased for all of them that it is now over."

The former PM's personal party fundraiser Lord Levy, whose role obtaining loans for Labour was at the centre of the allegations, said he had always been confident he would be exonerated.

He stopped short of criticising police, but hit out at a series of leaks from the inquiry.

Assistant Commissioner John Yates, who led the police investigation, defended his handling of the case as "absolutely proper".

And he won the public backing of his boss, Metropolitan Police Commissioner Sir Ian Blair, who described the inquiry as "meticulous and proportionate".

Prime Minister Gordon Brown said he hoped the decision would "bring an end to what has been now months of speculation".

Asked about party funding during an official visit to Paris, he said: "Proposals are already on the table and we should move ahead to try and get a better system of political funding in our country."

The cash-for-honours inquiry was sparked in March last year by a complaint from Scottish National Party MP Angus MacNeil that four individuals who lent large sums to Labour ahead of the 2005 General Election had later been nominated for peerages.

The individuals were among 12 rich backers who together bankrolled Labour's election campaign with loans worth almost £14m.

The inquiry saw four people arrested - Lord Levy, Downing Street aide Ruth Turner, entrepreneur Professor Sir Christopher Evans and a former member of the council of the Specialist Schools and Academies Trust, Des Smith.

It triggered intense debate in Westminster on the funding of political parties and cast a massive shadow over the last year of Mr Blair's time in power - possibly even hastening his departure from office.

The CPS published a nine-page document explaining its decision.

It said that political or public opinion had played no part in its analysis of the facts, or in its decision-making.

There was no direct evidence that an agreement was reached by any of the parties to exchange an honour in return for a loan, it said.

Lord Levy said he was "sincerely delighted and relieved" that the "incredibly long and really stressful" inquiry was at last over.

He added: "I do not intend to comment on the police's handling of this inquiry.

"However, I have been disappointed by the constant leaks to the media which have been misleading, factually inaccurate and personally damaging to me."

Mr Blair said he had no criticism of police, who had been put in an "invidious position" by the SNP complaint.

"The police were right to carry out a thorough and complete investigation," he said. "This investigation has ended as I always expected it would."

Ms Turner, who was Mr Blair's "gatekeeper" as director of government relations in 10 Downing Street, said yesterday's announcement came as an enormous relief.

She had been interviewed repeatedly by Scotland Yard's Specialist Crime Directorate, and in January was arrested in a dawn raid on her home and questioned on suspicion of perverting the course of justice.

"Although I was confident I had done nothing wrong, it has been a very stressful time for me and my family," said Ms Turner.

Tory leader David Cameron said: "What we need to do now is recognise that we have got to change the way we finance politics in this country - it is not healthy."

Mr Cameron said there should be caps on donations from businesses, trade unions and individuals - something which has put him at loggerheads with Labour, which fears being cut off from its traditional source of funding from the unions.