Government officials say they believe they are close to agreeing with the political parties that the upper chamber should become a mainly elected body.

The compromise would see 70% of peers being elected — probably on the same day as the next general election — with the rest being appointed. The 92 hereditary peers remaining after the last reform in 1999 would lose their seats.

Cabinet ministers last week agreed that Lords reform would be one of several flagship bills in the Queen’s speech in the first week of November.

Downing Street officials say the size of the legislative programme indicates that Blair intends to disappoint Gordon Brown by staying on until at least 2008 to see in reforms for which he hopes to be remembered.

Lord Falconer, the lord chancellor, has been leading private talks with the opposition parties about Lords reform. The Liberal Democrats, who favour a fully elected second chamber, are said to be ready to accept the compromise, and ministers are also confident of winning over the Tories.

Although Blair intends to give MPs and peers a free vote, he is keen to win a broad consensus on the issue.

Critics of a fully elected house say it would be unfair and undignified for respected and experienced life peers such as Baroness Thatcher and Lord Healey to have to put themselves up for election to the Lords. But under Blair’s compromise, as the number of appointed peers will be significantly cut, it will be for the party leaders to decide who will have to vacate their seats.

Since a royal commission under Lord Wakeham failed to reach a consensus on Lords reform, ministers have stalled on the issue, partly because of Blair’s personal reluctance to see peers elected and thus rival the democratic legitimacy of the Commons. The deal for only a partially elected house means this will be less of a problem.

The loans-for-honours row has led to renewed calls for further Lords reform. Advocates point out that if peers were elected there would be no question of allegations that businessmen were being offered peerages in return for donations to political parties.

Other reforms now likely include a change in the law to prevent the upper house blocking legislation that has been passed by the Commons. The decision to strip the peers of many of their powers follows a series of battles between the houses over issues such as hunting and identity cards.

Another sign of Blair’s staying power is that he plans to include a pensions bill in the Queen’s speech, demonstrating his determination to reform the system of means-testing pensioners put in place by the chancellor.

The prime minister also wants to reinstate his plans to shake up housing and incapacity benefits, which were dropped late last year for fear of a rebellion by Labour backbenchers.

Other bills agreed in what one official described as a “focused and steamlined” legislative programme include plans to boost the quality of and access to further education, legalise the switchover from analogue television to digital, and strengthen the powers of the London mayor.

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