David Cameron is planning to offer Nick Clegg a deal on Lords reform which would result in the expulsion of the remaining 92 hereditary peers and the election of a similar number of members at the next general election in 2015.
In a major watering down of Clegg's reform plans, the prime minister is planning to tell the Liberal Democrats that no further reforms would be introduced in this parliament.
The government would declare that the next parliament would be free to press ahead with further elections.
Clegg had hoped the elections to a new chamber in 2015 would be the first of three steps that would lead to 80% of the members of a 450-strong house elected by 2025.
Ministerial sources have indicated that the prime minister is planning to tell Clegg the Conservative party will not accept his reforms in their present form. Cameron licked his wounds on Wednesday after 91 Tory MPs staged the largest rebellion of the parliament to vote against the second reading of the House of Lords reform bill. It is understood that No 10 believes it may be able to reduce the core rebel group to around 30 Tory MPs if the Lib Dems agree to water down the plans.
The ideas being drawn up by the Tories are likely to come as a shock to some Lib Dems who still hope that the bulk of Clegg's plans will be put to the House of Commons in the autumn. But Clegg did float an idea along the lines of the plans now being drawn up by the Tories.
In his speech on Monday to open the two-day Commons debate on Lords reform, the deputy prime minister said he was willing to allow MPs to debate at the committee stage of the bill whether to pause the legislation after the first elections in 2015. Clegg told MPs: "It is essential that we make a start by having the first 120 elected peers elected in 2015. If members of this place want further reassurance about the triggers that would allow the second and third waves of election to take place, of course I, and the government as a whole, will be prepared to engage with that."
But Lib Dem sources made clear after Clegg's speech that the government would only allow a debate on a pause. If a vote were held at committee stage on this coalition, MPs would be instructed to vote against it, the sources said.
The Tories are now using Clegg's mild concession as the heart of a planned deal. In exchange for guaranteeing Tory support for lords reform, the prime minister would demand that Lib Dems support his plans to reduce the House of Commons from 650 to 600 members.
Ministers are looking at the possibility of passing the Lords reform legislation in the Commons and voting on the boundary changes between June and October next year. The boundary change is a relatively straightforward vote to pass a statutory instrument. Ending the Commons stages of Lords reform by the autumn of next year is designed to ensure that the parliament act can be used to force the reforms through, if peers object, by the time of the 2015 general election.
Senior Tories say the prime minister hopes the size of the rebellion and his angry exchanges with the Tory rebel leader Jesse Norman show that he has to compromise with his side. "Parliament is back," one ministerial source said. "The reality is that the executive is not as powerful as people think. Basically, this boils down to a deal. If we deliver lords reforms, they have to deliver boundary reforms. And remember this – they only need to deliver the 'payroll vote' [of ministers and their PPSs] to ensure the boundary changes are passed."
The prime minister is understood to be irritated with his whips. One Tory source said: "The whips really were sending out mixed signals."
Downing Street said Cameron was committed to talking to his own MPs and to presenting the Lords reform bill again to parliament in the autumn. As a first step, the government would table a "time allocation motion" setting timer limits to debates – the normal practice, observed by all recent governments.
Unlike the "programme motion" withdrawn by the government on Tuesday in the face of the Tory rebellion, the new motion can be amended. This is designed to put the pressure on Labour, which says it supports Lords reform but is opposed to imposing any time limits before the bill is committed to its next stage.
A Downing Street source said the prime minister was keen to find a way ahead. But the source said: "We want to get this through. We are trying to achieve House of Lords reform.
"But we do not want to snarl up the government's legislative programme on Lords reform. It is not a top priority for the government. We do not want to talk about House of Lords reform from now until the end of time. Fixing the economy and reforming welfare are our priorities."
The signals from the Tories on their plans for the reform came after Ed Miliband taunted Cameron in the commons for weaknesses after the Tory rebellion.
