Milburn set for a return to the Cabinet

Alan Milburn is set to return to the Cabinet after being wooed back to high office by Tony Blair.

Mr Milburn, who dramatically quit as Health Secretary just 14 months ago, has accepted an offer to become chairman of the Labour Party.

The Prime Minister looks likely to announce a Cabinet reshuffle within days after news of the offer leaked.

It is understood that the former health secretary was first offered the job, currently held by Ian McCartney, in July.

His initial refusal to accept, together with Peter Mandelson's delay in accepting the post as an EU commissioner, forced Mr Blair to abandon the end-of-term shake-up.

Having quit in June last year, citing his desire to spend more time with his family, Mr Milburn is understood to have been concerned at inevitable criticism at his change of heart. In an interview given five months after his departure, he ruled out a return for the "next two to three years" but added "you can never say never".

The recruitment of one of his closest allies to a key role is further evidence that the Prime Minister has abandoned any thoughts of standing down. Mr Milburn's occasionally prickly relations with Gordon Brown, the Chancellor, portend a power struggle over the running of the election.

The reshuffle is also likely to be fairly extensive in the middle ranks, with a number of ministers making way for rising stars.

Meanwhile William Hague is privately fuelling speculation that he could return as Tory leader, pointing to the comeback mounted by John Howard, the Australian premier. The former leader raised eyebrows last week when he hinted that he wants to re-enter frontline politics after the next election.

Although careful to say that he had "outgrown" the desire to lead his party, in private he is encouraging talk of a second stint at its head.

"The comparison William makes himself is with John Howard," said a close ally.

Mr Howard, like Mr Hague, achieved high office early in life and then became leader of the rightwing Liberal Party but was forced out after just four years, in 1989. Six years on, however, he was re-elected leader of his party; he was swept to power in 1996.

Mr Hague will have been out of frontline politics for four years next spring, when a general election is expected. But there is mounting resentment among Tory MPs about the refusal of figures like Mr Hague, Ken Clarke and Michael Portillo to do more to promote the Conservative cause.

All three are earning far more than their backbench salaries in activities outside Westminster, with some reports suggesting that Mr Hague made around a million pounds last year.