Blair defiant despite battering in the polls

• Tories gain 41 per cent of English vote

• Labour lose more than 460 seats

• Probe into Scotland fiasco as 10 per cent of votes are spoiled

In a night of drama, Labour lost hundreds of English council seats, saw power slip away in the Welsh Assembly and the Scottish Parliament.

It was not the all-out catastrophe for Labour that some had feared but it has set the scene for a close-fought general election between David Cameron and Gordon Brown.

Mr Cameron had a good night, notching up the equivalent to a 41 per cent share of a general election vote - 14 points ahead of Labour's 27 per cent. If repeated at a general election it would give him an overall majority.

He declared: "This is a stunning set of results. We are the one national party speaking up for Britain."

But the Tory leader's advances were steady rather than spectacular, with his best results clustered around the South-East. In the all-important Midlands and North-West, where most of the Westminster marginals lie, results were patchy.

Tony Blair said pundits had predicted a "rout" for Labour in council contests across England and Scotland, and Assembly and parliamentary elections in Wales and Scotland, but insisted this had not happened.

The Scottish results were being delayed by turmoil over an estimated 100,000 spoiled votes, many because voters could not cope with a complex new voting systems, evoking memories of the Florida "hanging chads" furore.

An immediate inquiry was launched by the Electoral Commission. Labour lost its overall majority in Wales, being predicted to fall to 26 seats out of the 60.

'Bloody nose for Labour'

Leadership candidate Michael Meacher said it was "a bloody nose for Labour" and added: "There's an indisputable need to change direction."

Deputy leadership contender Jon Cruddas said it was a "wake-up call".

But allies of Mr Blair were warning that the results already contained omens that Labour risked losing middle class supporters and its 1997 gains in the South-East if it swung to the Left.

Labour chair Hazel Blears admitted: "It's a tough time for us." But she said the "fundamentals" were right to win a fourth term. "Ten years into a third term it was always going to be difficult for us," she went on.

"But David Cameron has not made the gains he needed. I don't get the sense that people want to sweep us out."

Tory chairman Francis Maude said: "We are not going around saying the next election is in the bag."

For the Liberal Democrats, it was a disappointing day. They lost at least 100 council seats and failed to make ground in Wales. But they recorded a 26 per cent share of the vote and looked set to be kingmakers in Scotland and Wales.

Among the Tory gains were control of 15 councils including Chester, Plymouth, North Warwickshire, Gravesham and Dover, Woking, Waverley and South Ribble.

They became the biggest party in Birmingham City for the first time in 24 years. But the blue tide halted at Manchester where yet again the party failed to win a single seat.

The Tories were claiming to be on course to win 700 council seats - a better result than forecast.

Labour had lost six councils by breakfast time, with hundreds of seats still to be counted. They were wiped out altogether in Woking but made two gains in Thurrock, depriving the Tories of power.

Bin backlash

All three parties suffered big losses wherever their town halls had introduced or even planned the introduction of fortnightly bin pick-ups.

The Tories overall night of success was tarnished as they lost control of a string of councils that had trialled the new system, which critics say leads to more vermin and stinking bins.

The Conservatives lost North Lincolnshire to Labour, and Salisbury to no overall control.

But the Lib-Dems suffered the worst reverses as a result of the row over bins. They lost control of Waverley in Surrey - from 28 seats to three. And in Torbay, the party's 27 seats were slashed to nine.

In Blackburn With Darwen, Charnwood and Telford, other key areas to end weekly collections, Labour lost overall control.

Blair's future?

As the results rolled in, it emerged that Mr Blair will abandon politics within weeks and pocket a record £10million in his first year out of office.

The sale of his memoirs, lucrative directorships and the vast sums available on the U.S. lecture circuit will turn him overnight into a multi-millionaire.

He will leave behind him a bankrupt party and a political mess for Gordon Brown, who faces an uphill battle to restore Labour's tarnished fortunes.

Details of his money-making exit strategy emerged yesterday as sources reported that he intends to leave the Commons for good at the end of July, bringing his Commons career to a close just weeks after he stands down as Prime Minister.

His departure just half-way through a Parliament would make him the first former premier since the war to abandon the Commons and trigger a by-election.

Sources claimed Mr Blair and his wife Cherie are eager to cash in on their fame, and do not want to have to make their earnings public.

Resigning as the MP for Sedgefield would relieve him of the obligation to record details of his earnings in the Register of Members' Interests.

Mr Blair has been criticised in the past for failing to record details of his free holidays and other perks.

Experts predict that he will easily make more money than Bill Clinton or John Major on the back of book deals - his memoirs could fetch £8million - speaking tours, property investments and fees from high-profile companies that he has ruthlessly courted.

Mrs Blair is also expected to pocket around £2.5million a year from speeches.

As a former Prime Minister, Mr Blair will get an immediate pension worth £117,500 a year. The Blairs will also enjoy a £90,000 a year taxpayer-funded "public service" allowance to help them cope with life after Number Ten.