How Britain voted: Shock for Labour as nationalists storm Wales

TONY BLAIR suffered a severe setback yesterday when Plaid Cymru made dramatic gains to deny Labour an overall majority in the first elections to the new Welsh Assembly. Labour's delight at winning a higher share of the vote than the Tories in Thursday's local authority elections was overshadowed by its despair at its disastrous results when the votes for the Welsh Assembly were counted.

In Mr Blair's biggest electoral reverse since he came to power two years ago, the Welsh nationalists seized the "old Labour" strongholds of the Rhondda, Islwyn and Llanelli. Alun Michael, the Secretary of State for Wales and the Prime Minister's choice to lead the new Assembly, only won a seat because Labour performed so poorly. He was elected under the "top-up" system of proportional representation, designed to help the smaller parties.

Labour will be the largest party in the Cardiff Assembly, but looks likely to share power with the Liberal Democrats in both Wales and in the Scottish Parliament. Talks between leaders of the two parties in Scotland will be opened this weekend, and are expected to result in agreement on a Liberal Democrat-Labour coalition.

The Labour leadership could not disguise its sense of shock as the Welsh nationalists emerged as the surprise victors from the historic "Super Thursday" elections.

"It is a political earthquake that has been gathering momentum over several weeks," said a jubilant Dafydd Wigley, leader of Plaid Cymru. "People didn't think it was happening. Even we didn't realise it was happening to such an extent."

Labour won 28 seats, three short of an overall majority in the 60-seat Welsh Assembly; Plaid Cymru won 17; the Tories nine and the Liberal Democrats six.

Peter Hain, Welsh Office minister and Labour's campaign manager, said: "The message for Labour in Wales is this is a watershed for local Labour politics. We have to modernise our party and get up to scratch." He conceded that Labour had had "a very bad year" and party officials in Wales admitted it had been damaged by Mr Blair's determination to install Mr Michael as First Secretary.

Glenys Kinnock, MEP for South Wales East, said the Government had got its message through to Middle England but warned there was a "sense of alienation" among traditional Labour voters who felt the policies they wanted were not being delivered.

"They are impatient to see more. I think the Government has to be more active in all ways to ensure that our people understand that a great deal is being done," she said.

Donald Dewar, who will become First Minister in the Scottish Parliament, is likely to offer two ministerial posts to Liberal Democrats. He is expected to water down the Government's decision to bring in pounds 1,000-a-year tuition fees for university students, which the Liberal Democrats want to scrap.

One possible compromise is for more students on low incomes to be exempt. Labour may be forced to make a similar concession in Wales, but ministers insisted they would not be forced into a climbdown on the fees paid by students at English universities.

Labour officials said a deal on tuition fees would be difficult. "It will upset the balance within the market in further education. Students will want to go to Scotland to avoid tuition fees. It is not easy," said one source.

But Mr Blair hinted at a compromise, saying that different policies in England and Scotland could strengthen the Union. He insisted: "The devolution parties have done extremely well and the vast majority of people voted against nationalism," he said.

But there were signs of tension in the Cabinet over the scope of any concessions on tuition fees, with Gordon Brown and John Prescott opposed to a retreat. In a warning shot at the Liberal Democrats, Mr Prescott said: "I am not a fan of Lib-Lab deals ... It is fundamentally clear that Labour's manifesto is the one that was endorsed by the electorate and those with minority votes should take that into account."

The three main parties all took comfort from the local authority results. Labour pointed to its 36 per cent share of the vote, compared to the Tories' 32 per cent share and a strong 27 per cent for the Liberal Democrats.

But the Tories claimed they were "back in business" after gaining around 1,400 seats and winning control of 46 councils. William Hague's aides said the revival would end any threat that he might be ousted as Tory leader before the general election, although some senior MPs said he would remain "on probation" until after next month's European Parliament elections.

Mr Hague's hopes of making a fresh start were undermined when he had to censure Alan Duncan, one of his closest allies and a frontbench health spokesman, for describing the leadership's strategy as incoherent and urging it to "go back to the drawing board". The Conservative leader gave Mr Duncan a "severe reprimand" in a 10-minute telephone conversation last night. Mr Hague told him he would not tolerate "self-indulgent statements" by senior party members.

He ordered Mr Duncan to apologise and banned him from giving further media interviews without his permission.