The Plant commission agreed to a voting system which, while falling short of 'pure' proportional representation, would be fairer and would cut Tory seats.
The commission, headed by Lord Plant, professor of politics at Southampton University, voted by 10 to 6 against keeping the present scheme for electing MPs - while, as predicted by the Independent, a narrower 9-7 majority decided it should be replaced with a 'supplementary vote' (SV) system that would retain constituency links.
Had SV been used for the 1992 election, the Liberal Democrats would have won 45 to 48 seats instead of 20, predominantly in the South of England, producing a hung Parliament.
The decision sets the tone for a closely-fought debate in the party. It is unlikely ever to embrace full-blown proportional representation, which would weaken MPs' connections with individual constituences.
John Smith, the party leader, will declare his hand after the recommendation is put to the ruling National Executive Committee later this month, and wants to see the issue resolved at the autumn party conference.
Campaigners for change say Labour must present the prospect of a more representative system well before the next election. SV would allow voters to exercise first and second choices in a single ballot. Candidates who score 50 per cent of the vote would win outright. In all other cases, those with the highest number of votes after second preferences are added in would win.
While the scheme would retain the first-past-the-post principle, and still calls for tactical voting, it would ensure a fairer distribution of seats in relation to parties' shares of the vote.
The move's significance was underlined by Anthony Barnett, co-ordinator of Charter 88, the constitutional campaigning group. He said: 'It's great that Labour has gone for change, even if we would prefer something more proportional.' Voters should be allowed a referendum, he added.
An 11-4 majority of the commission voted down a proposal for a 'mixed member' PR system. One of its supporters who felt compelled to vote for first- past-the-post rather than accept SV said: 'We've dismissed the chances of every Labour candidate in the south.'
The Liberal Democrats said last night: 'We are glad they've boarded the train, albeit the slow train, towards fair votes.'
The commission overwhelmingly backed regional 'list' PR systems for the European Parliament and a second chamber to replace the Lords.
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