In the clearest warning yet that the current rigorous spending remit would have to be tightened still further, Mr Major told backbenchers: 'We have taken pounds 15bn out over the next three years, but more must yet be done to get back to the instinct for cutting taxation.'
In his end of term message to the 1922 Committee the Prime Minister announced that he was advancing election planning by setting up this autumn a series of manifesto groups which for the first time would include a wide range of backbench MPs as well as ministers.
In a euphorically received speech, which was candid about the damage caused by the divisions of the past two years, Mr Major referred to the 'seditious little argument' in some corners of the party that it would 'refresh itself' by a period of opposition. 'I have never heard such rubbish in all my life,' Mr Major added to loud applause.
While his reference to electoral defeatism was a sideswipe at the far right of the party, the general emphasis on tax and spending cuts - coupled with a promise to put 'clear water' between the Tories and Labour - indicated if anything a move towards the more mainstream right wing of the party.
Building on the increasing security of his leadership since his use of the veto over the European Commission presidency at the Corfu summit, Mr Major gave an upbeat forecast of economic progress. Recalling his reference as Chancellor to the need to conquer inflation, he said: 'It did hurt but it has worked.'
Mr Major stressed, however, that the Government was not seeking a recovery which was temporary or based on an unrealistic spiralling of house prices. The country needed not a brief spurt of prosperity but a sustained period of real growth.
In a speech shot through with an almost electioneering flavour in anticipation of Tony Blair's expected accession this month to the Labour leadership, Mr Major claimed that Labour had 'got away with murder' over the past two years, and promised the party would emhasise its differences from the Opposition over the next two years. On education, Labour was still against choice, grant-maintained schools, assisted places and A-levels, he said.
Beside depicting Labour as a party inevitably committed to higher taxes, less choice and opposition to NHS reforms, Mr Major raised - as he did in the 1992 election - differences on the constitution, saying that unlike Labour the Tories would never 'flirt' with proportional representation - a doctrine of 'political correctness'. Equally the Tories would oppose devolution, which he said would be a first step towards the break-up of the UK.
But he said the Tories needed a sharper, more focused message of what they stood for and promised that a more 'compact' legislative programme in the next parliamentary session would help them to do that.
Mr Major acknowledged that the 1996 or 1997 campaign would take the party into 'uncharted territory', given its 17 years of office. But that had been the case in 1992 when they had won the election, as they would next time.
Amid a series of plaudits from backbenchers, Sir Marcus Fox, chairman of the 1922 Committee, opened the proceedings by saying that the party was in much better shape than had seemed possible only a few months ago. And he closed it with a ringing declaration that Mr Major would lead the party to the next election and beyond.
Margaret Beckett, Labour's acting leader, condemned what she called 'extraordinary Tory complacency', saying: 'The country will be both angry and bewildered at the euphoric reception given to the Prime Minister . . . Only a month ago in the European elections the people of this country gave John Major and his government a massive vote of no confidence.'
John Watts, the MP for Slough and chairman of the Commons Treasury Select Committee, said afterwards: 'He has acknowledged the feeling of distance between the parliamentary party and ministers who perhaps have got too isolated by their officials.' He added: 'I would be absolutely amazed if anyone attempted to challenge his leadership after this.'