Lord Levy has always been an upbeat sort of bloke. As a record producer he made his fortune with lively numbers such as Sunshine on a Rainy Day by Zoë. And as new Labour’s fundraiser-in-chief he embraced its “things can only get better” vision like no other, selling Tony Blair’s dream of a richer and better Britain, not from a script but from the heart.

“He’s irrepressible, he’s ebullient, he’s always positive,” said one party donor (and peer) who knows him well. “It’s his stamp, his calling card — the secret of his success.”

So it was that early last week — at about the same time as a senior prosecution source was telling The Times that Levy was “feeling the heat” — he sat down with his wife Gilda in his hacienda-style north London home to send “hold the date” cards to family and friends. The Blairs, together with a select group of cabinet ministers, Downing Street aides and foreign dignitaries, were all on the list.

The occasion? Well, it was not as the recipients may have feared as they opened their envelopes. Levy was planning not for a day at the Old Bailey, nor even for another interview with the police, but for what friends say he expects to be one of the happiest days of his life: his son Daniel’s July wedding.

“Lord Levy is unhappy — angry even — about the briefing that has been going on, but he is still fighting,” said a friend. “He is innocent and expects to be cleared, so he is planning ahead and getting on with things as he has always done.”

Nevertheless, the cards landed on door-mats amid a scandal that is now moving swiftly towards its endgame. It is a storm in which Levy is reeling and which, when blown out, will leave either his career or those of his prosecutors in ruins.

“The stakes could hardly be higher,” observed one MP last week. “The police have taken the gloves off and gone at it with a tenacity and vigour that no one had predicted. There can be no win on points, we’re way beyond that now. It’s a knock-out or nothing and someone’s going off on a stretcher.”

Who that will be is not clear. On Friday a Whitehall source close to the prosecution said it was highly likely that Levy would face charges under the 1925 Honours (Prevention of Abuses) Act, which bars the sale of honours, and for attempting to pervert the course of justice. The police are said to be confident that Sir Christopher Evans, the biotech tycoon who secretly loaned Labour £1m, should also be charged with procuring honours. No wonder Blair is said to refer to the inquiry as “this ghastly business”.

Others suggest that it will be the police team, led by Assistant Commissioner John Yates, who will end up the losers. Yates has staged a series of high-profile arrests that have angered many in Downing Street and the Establishment. Yet nearly a year after his investigation started, he has not charged anyone and some speculate that the Crown Prosecution Service (CPS) is not convinced that he has the evidence to do so.

“The police appear to have some incriminating documentary material but we know nothing of any witnesses who are prepared to give evidence,” said one lawyer last week. “The building tempo may indicate that this has now changed, but it may also be that they are still trying to flush someone out.”

IT WAS a series of Sunday Times exposés that sparked the cash for honours scandal. In January 2006 an undercover reporter recorded Des Smith, a headmaster and a council member of the Specialist Schools and Academies Trust, which helps to recruit wealthy sponsors to back academies, boasted that donors to the project could expect to be rewarded with honours.

“You could go to the House of Lords and get a lord . . . become a lord,” Smith told our reporter.

Reporter: “So, if you invested in five city academies over, say, a 10-year period, it would be . . .”

Smith: “A certainty.”

In March 2006 this newspaper revealed the existence of a secret loans scheme set up by Blair and Levy to fund the 2005 general election. Loans, unlike gifts, did not have to be disclosed under party funding rules. Four businessmen — Sir David Garrard, Barry Townsley, Chai Patel and Sir Gulam Noon — had lent Labour a total of more than £5m. All were later nominated for peerages by Blair without the loans being declared.

“I don’t know why I bother raising millions for this party,” Levy said at the time. “No one here appreciates what I’m doing.”

Angus MacNeil, a Scottish National party MP, thought that he did appreciate what Levy was doing and promptly made a formal complaint to the police under the 1925 Honours Act.

Yates, a tough and talented detective who had led the investigation into Paul Burrell, the former butler of Diana, Princess of Wales, was dispatched to lead one of the most sensitive investigations ever carried out by the Metropolitan police.

The police were expected simply to go through the motions, but it soon emerged that Yates’s investigation was not going to be a whitewash when the police arrested Smith in a dawn raid on his home in Wanstead, northeast London.

“First arrest in cash for peerages scandal”, the headlines blared that evening. More drama quickly followed. In July, Levy was ordered to attend a north London police station where he was promptly arrested and interviewed for two days by Yates’s team.

In September, Evans was arrested and quizzed. Jonathan Powell, Blair’s chief of staff, was grilled under caution. Even the prime minister himself has been interviewed twice, albeit as a witness rather than as a suspect.

Levy has been questioned on at least three further occasions by police and — crucially — was rearrested in January, this time on suspicion of conspiring to pervert the course of justice. That arrest followed a dawn raid on the home of Ruth Turner, Blair’s director of government relations. She, too, was arrested for allegedly attempting to subvert the police inquiry.

Never have police tactics come under such scrutiny. In total police have interviewed some 35 people in the Labour party as part of their inquiry. Some say the intensity of the investigation means Yates must have compelling evidence of serious criminal activity. Others have accused him of “theatrics” and a crude attempt to intimidate witnesses into talking.

“The mood has been like thunder,” said one senior government insider. “It strikes me as old-fashioned intimidation and bullyboy tactics. They are behaving like the secret police.”

THE tightrope that Yates is treading took its first knock in January when the CPS announced that it would not bring charges against Smith: “The Crown Prosecution Service has today advised the Metropolitan police that there is insufficient evidence to charge Mr Des Smith with an offence under the Honours Act 1925,” said the CPS statement.

An emotional Smith, 60, responded by saying that he could now understand why Dr David Kelly, the government scientist at the centre of the Hutton inquiry, had been driven to take his own life. “My feeling of relief is immense and I don’t ever want to see the inside of a police station again,” he said.

Yates is not a man to be cowed, however, and nine days ago the inquiry exploded again after a crucial piece of evidence was said to have been leaked to Nick Robinson, the BBC’s political editor.

The leak concerned a document written by Turner last summer after a meeting with Levy and Powell, several months after the investigation first started in March last year. The document, a note of the meeting which was apparently obtained by police in January this year, is thought to be a central pillar of the police inquiry.

Apparently under the impression that the BBC had a full copy of the document, the police alerted Lord Goldsmith, the attorney-general, and asked him to seek an injunction preventing the BBC from reporting its contents, which he duly did.

The BBC, however, did not have the full document and the gagging order did not work for long. On Tuesday The Guardian ran a story reporting the BBC’s snippet: that Turner’s note recorded that she felt she had been placed under pressure by Levy in the meeting with Powell to mislead the police.

The story out, the Labour spin machine — or at least that part of it close to Turner — went into overdrive. Stories appeared saying that she was distraught about her treatment by Levy, that he had bullied her and that it was her own lawyers who had handed the document to the police.

“The encounter [with Levy] left her emotional, unhappy and tearful,” one source was quoted as saying. “She claims Lord Levy pressured and bullied her into changing her version of events.”

These claims were quickly rejected by Levy’s lawyers, who last week suggested that dark forces appeared to be conspiring against their client: “Lord Levy categorically denies any wrongdoing whatsoever . . . The current round of reports in the media, which are said to be based on leaked material under consideration by the police, are partial, contradictory, confused and inaccurate.”

The Sunday Times has established this weekend that the case is indeed more complex than last week’s reports suggest.

Crucially, Whitehall sources close to the prosecution say that the police are still running a dual-track investigation, with one line of inquiry focused on a suspected cover-up, but another still focused squarely on breaches of the Honours Act itself.

Levy, say these sources, is expected to be charged on both counts. Evans may still be charged with procuring honours. And Turner — despite the impression given by friends — is said to be still regarded by police as hostile and is far from being out of the woods.

Another player in the scandal is John McTernan, Blair’s political secretary. Last week The Spectator magazine repeated a claim that he had tipped off police to the “cover-up” meeting, describing him as “the first to sing”. Friends of McTernan said later he had “never attended a cover-up meeting” and was “in the dark” about the inquiry.

Some say McTernan and his fellow Number 10 aides are about to turn on each other — all have separate lawyers. Others say they may all turn on Levy. “Unity used to be the Blairites’ guiding principle but now, in the twilight of this prime minister, it is sauve qui peut,” wrote one observer last week.

So is the ratcheting up of the police investigation just bluster — a final throw of the dice by prosecutors to flush someone or something out at the 11th hour — or will this unprecedented investigation result in charges?

FOR Turner and Levy, at least, much would seem to depend on exactly what Turner wrote down following her meeting with Levy and Powell. The Sunday Times has been told that the document is relatively short and that it informally minutes what was said at the July meeting.

It is thought to record that Levy told the meeting that the police should be informed that he had no role whatsoever in the Downing Street honours nomination process. This appears to have been overruled in the meeting as untenable, because there was documented evidence to indicate otherwise.

A more credible line, apparently suggested by Turner herself, would be to concede that Levy had been present at Downing Street discussions about who should be nominated for honours but that his role had been limited to offering advice about the character and standing of nominees already under consideration.

Legal experts say that the wording of the minute and the testimony provided by those present would be crucial in establishing whether this would be enough for anyone present at the meeting to be charged with trying to pervert the course of justice.

For instance, did Levy explicitly insist that the police should be misled or lied to, as some reports have suggested? Or was it a more coded, or less structured, conversation, which is unlikely to prove watertight in a courtroom?

It is pertinent that Levy is now thought to accept that he played some role in the nominations process — something he had previously denied. The Sunday Times reported last year that Levy had told police in September — just two months after the crucial meeting — that he had attended Downing Street to discuss honours.

A friend of Levy’s said: “He was just asked his opinion on people that he happened to know: nothing sinister was going on. Downing Street asked his opinion on everything at the time. If he was going round selling peerages he could have filled the Albert Hall, twice over but the allegation is ridiculous.”

It is not known what other evidence the police have obtained, but it is understood that they have not just one important document but three.

One of these is thought to be the diary of Evans, which details social conversations that he had with senior Labour figures, including Levy. The diary is said to be “indiscreet” and suggested that Levy had offered Evans a “K or a big P”. The suggestion is that K stood for knighthood and P for peerage.

The content of the third document, said to have been recovered by police only recently, is not known but it too is understood to be explosive.

AS the police investigation continues, pressure is mounting on the CPS to decide whether charges should or should not be brought. Yates is said to be prepared to go public with his entire file if it backs down and refuses to bring charges.

“The CPS will find itself under the utmost scrutiny if it decides not to prosecute a case which is later found to be compelling,” noted one commentator last week. “Then again, it faces an equal burden of responsibility should it press charges in time to bring down a prime minister for a prosecution that later proves to be flaky.”

Last week MPs vented their anger about the time the investigation was taking. The CPS also faced criticism when The Spectator magazine unwisely suggested that Sir Ken Macdonald, head of the CPS, who withdrew from involvement in the inquiry at the outset because of links with the Blairs, may have tipped off Downing Street with information about the inquiry. This was immediately denied by Macdonald’s lawyers who are threatening legal action.

Informed sources say the final decision on whether to prosecute will not be made until at least May, raising the possibility that Blair will have left office before the inquiry is complete. The fate of all those concerned lies in the hands of Carmen Dowd, head of the CPS’s specialist crime division, who is being advised by David Perry QC, one of Britain’s top criminal barristers.

Whether Blair decides to accept Levy’s invitation to his son’s wedding will almost certainly depend on their deliberations.

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