In a surprise U-turn, the Government announced it was ready to accept defeat in its constitutional clash with the Lords over the system of voting to be used in next June's elections to the European Parliament.
Downing Street revealed the Government would not seek to overturn the decision if the Lords again rejected the system of proportional representation proposed by Labour in a crucial vote last night.
Peers have already thrown out Mr Blair's plans on four occasions, because voters would be allowed only to vote for a party, and not for individual candidates. The Tories, who enjoy a big majority in the Lords, say this method allows party machines to decide who is elected - a criticism shared by some Labour MPs who have accused their leadership of "control freakery".
With the parliamentary year due to end today, Mr Blair decided to raise the stakes ahead of last night's vote. His official spokesman said the session would not be extended, and the Government would not try to rush the Bill through Parliament in the new session which starts on Tuesday.
The Tories accused Mr Blair of trying to "intimidate" peers so they would back down in last night's vote, and insisted the Government could still get its PR system on the statute book if it wanted to.
A Liberal Democrat MP said: "There is a lot of bluff and brinkmanship going on. We are watching a game of poker being played out."
Ministers denied they were bluffing, saying next June's elections would be fought under the existing first-past-the-post system if peers rejected the Bill.
Mr Blair confirmed in fiery Commons exchanges with the Tory leader, William Hague, that he had decided to put the future of the 759 hereditary peers at the top of the political agenda. The Government's plans to end their voting and speaking rights in the Lords will form the centrepiece of the Queen's Speech and will dominate the forthcoming year.
The Prime Minister told MPs the issue was no longer about the electoral system for next June's poll.
He said: "It's about the hereditary Tory peers in the House of Lords ... the in-built Tory majority, three-to-one in the House of Lords, which means whatever the election result they can use the Lords to overturn the will of the Commons. That is not democracy."
Mr Blair bluntly told Mr Hague he had made a mistake by not ordering Tory peers to end their rebellion, accusing him of displaying "the strategic vision of a bat".
But the Tory leader accused the Prime Minister of over- riding "every constitutional check and balance to expand the power of your own clique of cronies at the expense of the power of the people".
The two leaders clashed over the reason for the Government's repeated defeats on the Bill, with Mr Blair blaming the 300 hereditary Conservatives but Mr Hague insisting that the independent crossbenchers had also opposed the measure.
The Tories have proposed an "open list" system under which people could vote for an individual candidate. But Labour has insisted on a "closed list" system which, as The Independent reported yesterday, would allow the leadership to drop several "Old Labour" MEPs by placing them low on the party list, while putting loyal Blairites at the top.
If Mr Blair reverts to a first-past-the-post system, all the parties would have to redraw their list of candidates. The June election would be fought mainly on the European constituencies used in the 1994 elections to the Strasbourg parliament, normally seven or eight Westminster seats lumped together.
The dissident Labour MEPs who face the sack by Mr Blair were hoping last night that his U-turn would throw them an unexpected lifeline.
Labour officials hope that some of the "old guard" will be persuaded to retire. If they refuse, Labour's Millbank headquarters will try to ensure they do not land winnable constituencies.
Why, then, did Mr Blair perform his U-turn? Insiders point to the fact that Jack Straw, the Home Secretary, and John Prescott, the Deputy Prime Minister - the Cabinet's two strongest supporters of the first-past-the- post system - applied pressure that helped persuade Mr Blair to rethink his strategy late on Tuesday night.
After the Lords threw out the Government's proposal for an unprecedented fourth time, Downing Street officials insisted initially that ministers would eventually get their way - even if it meant reintroducing the Bill in the new session of Parliament. But as Tuesday evening wore on, the Prime Minister began to have second thoughts as he consulted key ministers by telephone.
Mr Straw and Mr Prescott were instrumental in persuading Mr Blair that the Lords' rebellion had handed the Government a golden opportunity. They argued that the "big picture" issue - to use one of Mr Blair's favourite watchwords - was not an arcane dispute over the system of proportional representation to be used, but the "abuse of power" by the Tory hereditary peers in defying the will of the elected House of Commons.
Mr Straw and Mr Prescott told the Prime Minister that the short-term pain of being defeated by the Lords would be outweighed by the long-term gain of justifying the plan to strip the hereditary peers of their rights. "We realised there was a much bigger prize to be won," said one minister.
Mr Blair's official spokesman said yesterday: "We have a very good issue for promoting the case for stripping hereditary peers of their voting rights."Reuse content