Blair to stand down next year if Labour MPs fail to back his reforms, say aides

Close allies say that Tony Blair may stand down as Prime Minister next year if Labour MPs refuse to back his reforms on education, health and welfare.

Aides said yesterday that Mr Blair was not "threatening" to quit and hoped to carry on beyond next year, winning parliamentary approval for the changes included in Labour's manifesto. They insisted he still wanted "a stable and orderly transition" to Gordon Brown before the next election and did not want to plunge his party into turmoil by walking out.

But the Blair allies raised the prospect that the Prime Minister could decide to leave sooner than expected if Labour MPs blocked his attempts to reform public services to secure his political legacy. One close adviser said: "This is not a threat. It is just the reality. There would be no bitterness. If people don't want him to continue, so be it. But they have to decide what sort of government they want."

The message will be viewed with alarm by his critics in the Parliamentary Labour Party. They are worried that he has become an increasingly presidential figure who might damage Labour's prospects at the next election by detaching himself from his party.

Blairites admit that it would be "a disaster" for the Prime Minister to quit after the rejection of his reforms, saying Mr Brown would then face a Conservative Party led by David Cameron that would present itself as in favour of the changes sought by Mr Blair.

Allies said Mr Blair would make concessions over the Government's plans for schools, which face opposition by more than 100 Labour MPs. He will try to allay their fears that the Education Bill would encourage selection by ability and a free-for-all on school admissions.

But one aide said: "He will only be willing to go so far. He won't dilute the central elements of the reforms. People should understand that if his position becomes untenable, it will not be in the interests of the Labour Party."

The election of Mr Cameron has sparked an intense debate at Labour's highest levels about when it would be best for Mr Blair to leave Downing Street. His instinct is to stay on until 2007 or 2008, so that Mr Brown rather than Mr Cameron would be the "fresh" face at the next election. But the overwhelming view in the Brown camp is that the Chancellor should now take over sooner rather than later. The differences threaten a fresh outbreak of tension in the new year.

Yesterday, the Tories continued their rebranding exercise when Oliver Letwin, the Shadow Cabinet minister heading Mr Cameron's wholesale policy review, declared that the party now supported the redistribution of wealth. Mr Letwin said that reducing the gap between rich and poor did not necessarily mean raising taxes for the rich. "We have to think about ways in which we can empower people at the bottom of the heap to make a better life for themselves," he said. "And that is not just grab from one person and give to another."

While sending a signal the Tories are changing, his statement may make it harder for the party to offer tax cuts and to criticise Labour for any tax increases and measures to alleviate poverty.

Jim Murphy, the Cabinet Office minister, said the Tories had no credibility on the issue. "It is Labour that has so far taken one million children and one million pensioners out of poverty," he said. "The Tories opposed all of the key decisions and tough decisions that we took to do it."