Under the formula, 91 peers will be retained as part of a first stage of reform ahead of their eventual abolition. Currently, the hereditary element of the Lords gives the Tories an overwhelming advantage, with 475 peers compared with Labour's 176. With 322 crossbenchers, 69 Liberal Democrats and 124 others, the Government was always going to struggle to get through its bills, despite its massive Commons majority.
The new deal, devised by three key crossbenchers, Lord Weatherill, Lord Marsh and the Earl of Carnarvon, offers a way out of the impasse threatened by William Hague's original determination to oppose every government measure.
Under stage one, 659 hereditary peers would be abolished but 91 would remain as part of a transitional House of Lords. Of the 91, 75 hereditaries will be chosen from within each party according to its strength in the Lords. This would leave the Tories with 42, Labour two, Liberal Democrats three and crossbenchers 28. Another 14 will be elected by the House.
The Great Lord Chamberlain, the Queen's representative, and the Earl Marshal, who is responsible for ceremony, would also retain their seats until stage two, when all hereditaries would finally go.
Stage two, which would result in comprehensive change, is now likely to occur much sooner as the Royal Commission on reform will be brought forward within the next 12 months.
The transitional House will consist of 215 Tories, 160 Labour, 48 Liberal Democrats and 148 crossbenchers. However, under the deal, Mr Blair would be allowed to create an extra 55 life peers to give Labour parity with the Tories.
Downing Street said yesterday that the crossbenchers' amendment could be incorporated into the Government's House of Lords Reform Bill, to be introduced in the new year.
Ministers made clear yesterday that they would consult the crossbenchers on the best way to proceed.
It is unclear how long stage one will last. Until the deal emerged, it was expected that reform of the Lords would be delayed until after the next Parliament. Now Downing Street is talking up the possibility that stage two could be on the statue book before the election.