Thatcherite poses real challenge to Portillo

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Iain Duncan Smith was emerging as the most likely candidate to challenge Michael Portillo for the Tory leadership last night, with his supporters claiming he was building momentum.

The shadow Defence Secretary's campaign team was confident of securing at least 35 votes in the first ballot of the contest, enough to put Kenneth Clarke into third place.

An update of The Independent's survey of Tory MPs shows Mr Duncan Smith's support now standing at 34, behind Mr Portillo on 43. Mr Clarke is stuck on 21, while David Davis is on 14 and Michael Ancram on 13. Mr Duncan Smith's hopes were also boosted by a Mori poll showing he had a strong lead among the 55-plus age group that forms the core of the Tory membership.

The rising optimism among supporters of the Chingford and Wood Green MP came as he outlined his vision for public services with a call for an end to the state monopoly in the provision of health care. In an uncompromisingly Thatcherite attack on Labour's record on the NHS, Mr Duncan Smith said that it was time to look for solutions to "beyond the ration-book state" of the 1940s. He unveiled two new supporters yesterday, Andrew Turner, the new MP for the Isle of Wight, and Laurence Robertson, MP for Tewkesbury. His camp intends to announce more declared names on Monday.

Mr Duncan Smith visited 120 local Tory associations during the election after being assigned a campaigning role by William Hague. "He may not be well known yet by the public, but he is well known by Tory members ­ the people with votes," one supporter said.

Mr Ancram claimed three new supporters: Malcolm Moss, MP for Cambridgeshire North East, Tim Boswell, MP for Daventry, and Eleanor Laing, MP for Epping Forest.

Vital to the calculations of the Duncan Smith backers is the expectation that a large chunk of support for Mr Davis, another strong Eurosceptic, would transfer to their man once Mr Davis was knocked out.

With the likely support of Baroness Thatcher, Mr Duncan Smith and his allies believe that he could capitalise on what they claim is widespread unease towards Mr Portillo among the rank and file.

However, the Portillo campaign readily admits that it is more worried by a run-off against Mr Clarke, and it is likely to welcome a head-to-head contest against the shadow Defence Secretary because of his lower public profile.

Mr Clarke, despite gloomy projections of his support among MPs, warned against the overconfidence of his rivals yesterday. "No one is as committed yet as you think. Wait and see. Of course Ancram belongs to a similar wing of the party. But the right is split three ways," he told The Spectator magazine.

In his speech in London, Mr Duncan Smith criticised the way the NHS was founded in 1948, claiming that it politicised some of the "vital institutions of civil society.

"The first thing we as Conservatives must do is make it absolutely clear we believe in public service. But public service is not just about the state sector," he said.

"Labour has come a long way but, though they may say the right things, they are still wedded to ration-book politics. As Conservatives, we need confidence to look to ourselves for ideas and solutions beyond the ration-book state."

He highlighted the Tory party's traditional involvement in the voluntary sector and said it should be encouraged to get more involved in the delivery of public services such as health.

"Our challenge is to end the state monopoly. The issue is not public versus private, but monopoly versus competition," Mr Duncan Smith said.

Mr Portillo will begin an attempt to woo the Tory grass roots today by launching a nationwide campaign of visits to meet local party members.

Symbolically, his tour will begin in Guildford, Surrey, a seat the Tories expected to hold but where Nick St Aubyn, his parliamentary private secretary, was beaten by the Liberal Democrats.

Mr Portillo's opponents claim that his "conversion" is playing badly with the grass roots. "Many of them are suspicious; they don't want to turn their backs on Thatcherism," said one Tory MP.