Tories In Turmoil: 'Hague is looking like a man with the label "Caretaker"round his neck'

TONY BLAIR was the one who entered the Commons chamber with trepidation at 2.55pm on Wednesday for his weekly joust with William Hague at Prime Minister's Questions. He was convinced one issue would dominate the session: Whether Britain would be forced to sign up to a common tax policy throughout the EU.

This was a gift for Mr Hague: Exaggerated reports in Euro-sceptic papers that Britain could lose its freedom over tax had been given credibility by Oskar Lafontaine, the German Finance Minister, who called on Tuesday for Britain's veto to be scrapped. "We were on the ropes; we expected six questions ... on tax. We couldn't believe what happened," said a member of Mr Blair's team.

Instead of attacking on Europe, Mr Hague sought to pre-empt the announcement to be made shortly in the Lords by the independent crossbench peers - that they had brokered a consensus plan for Lords reform acceptable to all parties. Mr Hague hoped that, by attacking Mr Blair's U-turn on removing all the hereditaries at once, it would be the Prime Minister who was on the defensive. He feared that, if he had raised the Euro-tax issue in the Commons, the Tories would have been on the back foot on Lords reform, as Mr Blair welcomed the crossbenchers' initiative and he rejected it.

Whatever his reasoning, even some loyalists in his shadow Cabinet privately concede the strategy fell apart. Publicly, they backed Mr Hague for showing "strong leadership" by sacking Lord Cranborne for negotiating with Mr Blair behind Mr Hague's back. But, as the rebellion by Tory peers spread yesterday, MPs were wondering whether Mr Hague had made a catastrophic error by removing the popular Lord Cranborne. Insiders suggested a parting of the ways with him was inevitable. Some sources said he had threatened to resign twice - once over Mr Hague's decision to maintain Tory opposition in the Lords to the Bill bringing in proportional representation for European Parliament elections and once over a separate dispute with Liam Fox, the Hague ally who is the party's spokesman on constitutional affairs.

But by firing Lord Cranborne Mr Hague has unwittingly widened the divide between the Tories in the Commons and Lords. "There was always a difference of view," said one peer. "Cranborne ... treated Hague like the gardener on his estate. He used to say, 'Let Hague deal with it', as if he was one of his staff. That is the difference between the Tory hereditaries and the Tory leader. They think he is too lower middle-class."

Mr Hague's biggest sin, say Tory critics, was to accept the main elements of the deal Lord Cranborne had been negotiating. Some shadow ministers could hardly believe their eyes as they watched Mr Hague change his line on this during a grilling by Jeremy Paxman on BBC2's Newsnight on Wednesday.

For once, Mr Paxman cannot claim the credit. The reason an agreement that was unacceptable in the Commons seven hours earlier was now a concession to be pocketed was simple. Mr Hague knew he would face a massive Lords rebellion if he ordered them to oppose the crossbenchers' reform plan. The more immediate problem was Mr Hague knew he would have trouble finding a credible leader of his Lords team to succeed Lord Cranborne if he insisted on opposing the consensus plan.

Lord Strathclyde, who offered his resignation with the rest of the Lords frontbench team, struck a deal with Mr Hague by which he would become leader only on condition he could back the crossbenchers' plan. "Hague was so desperate he had to give way," said a Tory source. "But it didn't look so good in the cold light of day. Everyone was asking why Cranborne had to be sacked if the deal was acceptable." Privately, Mr Hague knew his hopes of containing the rebellion would be dashed.

Lord Fraser, Lord Cranborne's deputy, had told him late on Wednesday he would resign out of loyalty to Lord Cranborne, and announced his decision yesterday.

There was worse to come: three more frontbenchers could not contain their anger - Lord Bowness (environment and transport); Lord Pilkington (education) and the Earl of Home (trade and industry).

Some peers were reassured by the soothing words of Lord Strathclyde at a meeting of Tory peers. But they were not enough for Baroness Strange, a backbencher, who announced she was jumping ship to the crossbenches. Criticising the Tory leader's handling of the affair, she said: "If you a leader of a party you must consider all views. If you are not prepared to do that, you are not the person to lead."

She may not be the only Tory peer to resign and join the crossbenches. Lord Weatherill, the former Tory speaker of the Commons, is the convener of the crossbench peers and said he was turning some Tories away, asking them to think carefully before taking such a step.

The fiasco of the past 48 hours has renewed speculation at Westminster about whether Mr Hague will be ousted as leader before the next general election. As one Tory MP said, he looked like a leader with a "caretaker" sign hanging over his neck.

However, there is no permanent fixture waiting in the wings to take over. Michael Portillo and Chris Patten cannot run because they are out of Parliament; Kenneth Clarke is out of tune with an increasingly Eurosceptic party.

Whatever the growing rumblings against Mr Hague, he would be extremely difficult to dislodge. To force a leadership contest, a group of anti- Hague rebels would have to get the signatures of 20 per cent of the party's MPs to request an election, and Mr Hague would then have to lose a vote of confidence before a contest were actually held. "We are stuck with him," a Tory grandee moaned last night. Mr Hague's aides insist he is unfazed by all the criticism. But the strains were showing last night. Francis Maude, the shadow Chancellor, was in tetchy mood in a BBC radio interview in which he insisted: "Mr Hague is not going to go. He is decisively leader of the party." It sounded like the proverbial vote of confidence in the football club's manager just before he is sacked.

And last night there were growing numbers of Tory MPs - as well as peers - who grudgingly admitted Mr Blair's favourite taunt was right: Mr Hague is someone who gets every major strategic decision wrong.