The move was supported by Labour, but defeated by 13 votes to 14 with the votes of Robert Maclennan, the Liberal Democrat, and Cynog Dafis, the Plaid Cymru MP.
John Whittingdale confirmed last night that he had written a letter of resignation as Parliamentary Private Secretary to Eric Forth, the education minister, and Peter Atkinson gave up his post as Parliamentary Private Secretary to Jeremy Hanley, the Foreign Office minister, for defying a Government whip on the Bill's committee stage.
Roger Gale, a Tory backbench MP who strongly supported the Government, said: "I understand they do not do this lightly. They are clearly committed but they are profoundly wrong. It is something of a political waste and a sacrifice."
Both MPs argued that the limit on 20 per cent of market share was arbitrary and wrong. It is understood that ministers pressed Virginia Bottomley, the Secretary of State for National Heritage, to compromise before yesterday's vote but she refused to back down.
Right wing MPs were privately furious with Mrs Bottomley for her policy on the Bill. Some Tory MPs said they were appalled at being outflanked on competition by Labour's front bench team on the Bill, led by Lewis Moonie, the party's national heritage spokesman.
Mr Moonie gave a clear hint that if Labour wins the election, a Labour government would review the rules for cross-media ownership. It would prevent the Mirror Group - part owners of the Independent - from investing in commercial television, unless they reduced their newspaper holding.
Iain Sproat, the national heritage minister, said the group could carry out a take-over bid for a television company, and under the Bill would have a year to divest themselves of a stake in newspapers to go below the 20 per cent limit. He also announced one concession to allow local newspapers with more than 50 per cent market share to invest in commercial radio.
Mr Whittingdale, a former adviser to Baroness Thatcher, said: "I have a strong belief in market forces and would wish to see them allowed to operate in this sector. It find it more surprising I have the support of Labour and I view it with a degree of suspicion and cynicism." He said Labour's attempt to raise the limit on ownership by a newspaper group to 25 per cent of market share was a "cynical" move to help the Mirror Group which supported Labour.
Mr Atkinson said they were not proposing a "free for all". They were proposing that the fixed limit should be replaced by a public interest test, which would enable bids to go ahead if they were not judged to be against the public interest.
"In a digital age, when we could have an additional 300 TV channels to talk about market share in newspapers is like rearranging the deckchairs on the deck of the Titanic."
Mr Moonie said the 20 per cent limit was "unnecessary and wrong". Other newspaper groups including the Telegraph, the Guardian, and Berlesconi in Italy could take over commercial television channels, but only the Daily Mirror and News International were caught by the rule. Public interest should be the acid test of ownership of media interests, he said.Reuse content