Nick Clegg’s ambitious attempt to create a directly elected House of Lords is in tatters tonight after David Cameron withdrew support from the plan in the face of opposition from Tory backbenchers.
The Prime Minister told Mr Clegg that there was no way he could get enough support to force the measure through the House of Commons and that the Government needed to shelve the plan ahead of a planned re-launch in September.
Senior Liberal Democrats privately admitted that Lords reform was effectively dead but warned that the move would have “consequences”.
They confirmed the party would go-ahead and block changes to Parliamentary boundaries which would help the Tories at the next election.
"Our position is very clear on what would happen if the Tories failed to deliver. A deal is a deal," said a source.
Mr Cameron’s aides also accepted that boundary change was now “less likely” to happen but insisted they would still try and get the measure through.
“There was never a quid pro quo between boundary changes and Lords reform,” they said. “Let’s see what happens. The boundary change legislation is still some way off.”
A decision on what to do about House of Lords reform had been due to be taken by the Coalition in September.
But aides to the Prime Minister concluded it was better to announce the move earlier – during the Olympics - and before party conference season gets underway.
They hope that this will limit the damage of the u-turn and “clear the decks” for a major “re-launch” planned for the autumn. This is expected to include an extensive reshuffle of junior ministerial ranks and a more limited reshuffle of the cabinet.
But the decision leaves a big hole in the Government’s legislative agenda and will effectively kill Tory plans to reduce the number of MPs in the House of Commons by redrawing the existing boundaries.
It will also provide a headache for Mr Clegg at his party’s conference. While House of Lords reform was unpopular with voters it remains important Lib Dem activists.
Coming after the loss of the AV referendum it means Mr Clegg will have no major constitutional reform to show for the decision to enter Government.
Conservative sources said that an announcement would be made next week but Liberal Democrat sources down-played this suggestion.
“These are difficult and complex negotiations. I would be very surprised if we are in a position to make an announcement next week,” the said.
It is still possible that the Government will attempt a more limited reform of the House of Lords – possibly backing a bill by the former Liberal Democrat Leader Lord Steel which is currently going through Parliament.
It would allow peers to retire, ban those who were imprisoned from returning to the red benches and give the authorities tougher powers to suspend members.
It could be amended in the House of Commons - re-introducing clauses dropped in the Lords which removed out hereditary peers, placed an absolute cap on numbers and cut the power of patronage in a more independent appointments commission.
Conservative sources said focus was now on a search for legislation to fill the slot set aside for an elected second chamber.
A large amount of parliamentary time – almost three weeks on the floor of the Commons – has been allocated for the legislation in both houses of parliament.
One source said the replacement would be “jobs, jobs, jobs”, adding there had been a series of meetings on the issue in Downing Street on Thursday.
Some senior Lib Dem activists said the party should go further and block other aspect of the Tory manifesto in revenge.
Dr Evan Harris, a Vice of Chair of the Party's Federal Policy Committee, said: "If the Tories can not deliver on a fundamental part of the coalition contract, like Lord's reform, then boundary changes is just a side show. Liberal Democrats should start looking again at things the Tories had in their manifesto and which – regardless of whether they are in the coalition programme – should now have support withdrawn."
What happens next?
House of Lords reform dropped. Clegg loses no-confidence motion at the Lib Dem conference from angry delegates and forced to step down. Coalition collapses.
Lib Dem and Tories agree to beef up Lord Steel’s proposals for more limited Lords reform – including removing hereditary peers which becomes law. In return Lib Dems offer to abstain in boundary change legislation allowing the measure to pass.
Nick Clegg and David Cameron announce that they can neither agree on House of Lords reform or boundary changes and as a result both measures will be dropped.
House of Lords reform dropped. Nick Clegg makes clear he cannot deliver his party to vote for boundary changes. Backbench Lib Dem MPs vote against proposals while ministers abstain. The measure fails to pass but the Coalition survives.