The Electoral Commission has announced there is insufficient evidence that the Conservative party breached electoral law by failing to declare payments to its former head of communications – Andy Coulson.

The Guardian has revealed that the party will not face an official inquiry into allegations that it broke electoral law by failing to declare News International's payments to Coulson following his resignation as editor of the now defunct News of the World during the early stages of the alleged phone hacking allegations.

The Electoral Commission made the announcement after it was asked to investigate a series of payments amounting to a six-figure sum made to Coulson by News International in the months after he arrived at Conservative campaign headquarters in 2007, as well as a company car and health insurance he received for three years.

Tom Watson, the Labour MP and a member of the Commons culture select committee, had raised concerns that the money could have amounted to an undeclared donation to the party.

The revelation, according to The Guardian, that Coulson received the severance payments from News International while working for the Conservatives, had put renewed pressure on the party, which had previously denied that he was paid by anyone else while employed by them.

The Electoral Commission said there was no evidence that the payments related to his political activity with the Conservative party in any way.

Specifically, they had not received evidence that the payments had subsidised Coulson's wage, or that the health insurance had saved the party money.

Watson has separately written to the parliamentary standards commissioner asking him to investigate why the payments were not declared in a register of pass holders for 2007.

Meanwhile, a 71-year-old man, understood to be former News of the World managing editor Stuart Kuttner, was released on bail last night as part of the phone-hacking probe.