Under the proposal, the Prime Minister and other party leaders would retain their right to choose at least a proportion of the names appearing on the lists drawn up by the political parties from which the membership would be drawn.

Eminent individuals who are not allied to a political party would still be able to sit in the House of Lords because a proportion of the lists would have to be proposed by an independent appointments commission.

Peter Hain, the Leader of the House of Commons, and Lord Falconer of Thoroton, the Lord Chancellor, who are working together to devise a scheme acceptable to Labour members in both houses and to party activists, support the indirect plan. The idea of the “secondary mandate”, under which seats in the second chamber would be distributed in direct proportion to the votes cast at the general election, has gained considerable ground in recent weeks after the Government postponed its plans to abolish the remaining 92 hereditary peers in the present session of Parliament.

The proposal is intended to meet Tony Blair’s conditions that the second chamber should not be seen as a rival to the Commons and that it should not be a hybrid of part-elected and part-appointed members. Because of the first-past-the-post system, if Labour’s national vote were 45 per cent it would win a large majority in the Commons. Under the new plan it would have only about 45 per cent of the seats in the Lords.

The idea of allowing independent peers to continue to sit in the Lords emerged after criticism that a fully indirectly elected House would deprive Parliament of the wealth of expertise on the cross benches. Under the proposal backed by senior ministers, each of the main parties would have on its list a proportion, possibly 5 per cent, of names put forward by an independent commission.

Officially they would be “elected” like the others on the list, but in practice they would not have a party label once in the House.

Ministers are divided over whether candidate lists should be drawn up regionally or nationally. This issue will have to be resolved before the party is given a proposed plan.

Mr Blair wants Labour’s national policy forum to consider his proposals further in July with the aim of the party conference voting on the issue in the autumn.

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