He will leave behind him a bankrupt party and a political mess for Gordon Brown, who faces an uphill battle to restore Labour’s tarnished fortunes.
This morning the Chancellor was contemplating the political wreckage left by the final round of national elections on Mr Blair’s watch.
Voters turned their backs on Labour and delivered its worst election performance in 35 years.
The Tories claimed they were on course to win 600 seats, with much needed gains in the North.
Early projections gave them 41 per cent of the national vote, bringing David Cameron within reach of a general election victory.
By 6.00am it was clear that Labour had avoided a national meltdown, the Conservatives had gained 300 seats, while Labour had lost 150 seats and the Liberal Democrats an estimated 100 seats.
Labour is still set to record its lowest number of councillors since 1973. The bad night triggered calls for a fundamental review of the party’s direction.
Deputy leadership candidate Jon Cruddas said: "This must act as a wake up call for Labour."
Only last month Mr Blair appealed to voters not to harm Labour by giving him "a kicking one last time on my way out of the door".
Details of his money-making exit strategy emerged yesterday as sources reported that he intends to leave the Commons for good at the end of July, bringing his Commons career to a close just weeks after he stands down as Prime Minister.
His departure just half-way through a Parliament would make him the first former premier since the war to abandon the Commons and trigger a by-election.
Sources claimed Mr Blair and his wife Cherie are eager to cash in on their fame, and do not want to have to make their earnings public.
Resigning as the MP for Sedgefield would relieve him of the obligation to record details of his earnings in the Register of Members’ Interests.
Mr Blair has been criticised in the past for failing to record details of his free holidays and other perks.
Experts predict that he will easily make more money than Bill Clinton or John Major on the back of book deals – his memoirs could fetch £8million – speaking tours, property investments and fees from high-profile companies that he has ruthlessly courted.
Mrs Blair is also expected to pocket around £2.5million a year from speeches.
As a former Prime Minister, Mr Blair will get an immediate pension worth £117,500 a year. The Blairs will also enjoy a £90,000 a year taxpayer-funded "public service" allowance to help them cope with life after Number Ten.
The tax-free allowance can be claimed every year until Mr Blair dies.
He is also entitled to free telephone calls, stationery, an official car and driver and Special Branch protection worth around £1.5million a year.
Sources say Mr Blair will stand down as an MP just before the House rises for the summer recess, with July 23 earmarked as the preferred date.
Yesterday Downing Street fuelled speculation about Mr Blair’s future by refusing to deny that he will quit as an MP before the General Election, expected in 2009.
His spokesman said Mr Blair had not yet made a decision about his political future after he leaves office, probably on July 2. "He very firmly remains MP for Sedgefield and proud of it," he said.
Cherie Blair is reported to have told friends: "Now is the time for us to go and make some money. There is no way he is ever going to serve under Gordon Brown, even as a backbencher."
As details of Mr Blair’s escape plan seeped out, there was surprise among some Labour MPs that he was "deserting" the party.
There was speculation that some of his die-hard allies, including Alan Milburn, Stephen Byers and John Reid, are planning to leave the Commons at the same time.
A source said: "They have no future under Gordon Brown, so they reckon they could quit together and trigger a by-election "Super-Thursday" to annoy him."
Mr Blair will tell his party at his Sedgefield constituency next Thursday that he is resigning as Labour leader, triggering a process to confirm Mr Brown as his successor.
The outcome is due to be announced on June 30.
Rumours that Mr Blair might quit as an MP have been denied until now, but Labour officials are now openly preparing for a byelection.
Would-be MPs are already jockeying for a plum seat that Mr Blair has held for 24 years.
He is widely expected to embark on a lucrative lecture tour of the U.S. when he leaves Downing Street.
Wes Neff, the boss of a prominent New York speakers’ agency, said: "The big names at the moment are Clinton, Rudy Giuliani and Colin Powell but all these have been in the market place for three or four years."