AH challenge: make Liberals and SDP the two main parties in British politics

Your challenge if you choose to accept is to make the SDP and the Liberal party become the two main political parties in British politics; with the Conservatives as a 3rd party with strong rural following. Your POD can be between 1978 and 1984 and the scenario must be the case by 1992. No ASBs.
 
The Labour party collapses despite Michael Foots best efforts and ends up as two parties, a remaining Labour party and a new British Socialist Party with large numbers of members and even MPs defecting to the Alliance, Britain loses the Falklands War with Thatcher humiliated. In an effort to try and improve Tory chances or at least hold off the inevitable, Thatcher waits until 1984. In a last minute bid to save the party from destruction, Michael Heseltine launches a leadership challenge, hoping to replace Thatcher with a more liberal brand of Toryism. His close victory after two ballots divides the party quite similar to Labour and several backbenchers, disgusted at Heseltines new government split from the party to form the newly formed "Libertarian Party".

When the 1984 election comes it is one of the most open ever seen in British politics with Labour, the Conservatives, the Alliance, the BSP and the Libertarians all mounting fierce campaigns with bitter resentments coming across, the Alliance is clearly the most credible and stable in the public eye. On election night, it is no surprise that they have the biggest percentage of the vote at 39%, the fighting between Labour and the BSP and the Conservatives and the Libertarians allows the Alliance to take many seats through the back door. Thus by the end of the night the Social Democrats and Liberals stride confidently into number ten with a majority of over 100. The Libertarians are wiped out entirely, with a few charismatic BSP politicians such as Derek Hatton surviving. Labour are left hanging on in Scotland, Wales and the north of England with the Tories surviving the best, holding just under 100 seats in the south.

Despite an early wave of optimism, divides surface between the Social Democrats and the Liberals over policy soon enough with both ideologies becoming more distinct especially over electoral reform, by the time of the 1988 election both parties have abandoned the pretence of alliance and actively campaign against each other with the Social Democrats been seen as the more "left" party and the Liberals as more right. Labour leader Neil Kinnock and Conservative leader Douglas Hurd have fought to try and regain their dominance but a contribution of factors, such as a catastrophic drop in funding and media attention and past Labour/Conservative voters voting tactically to keep out the Liberals/SDP. Labour, squeezed between the centrist SDP and the Trotskyite BSP, only holds twenty seats whilst the Tories only keep forty. Nationally there is a hung parliament, with Labour going into coalition with the SDP. When 1993 rolls around, the Labour party have become so similar to the SDP that they are seen as irrevelant, they can only hold the clydeside. The Conservatives have kept themselves distinct by refusing coalition with the SDP. They survive better than Labour in the clear Liberal victory of 1993 and gain seats when the Liberals win a second term in 1997. By the time 2002 rolls around, the Labour party have solidified their support in the clydeside but find they cannot advance outside. The Conservatives, reverting to more nostalgic social conservative values with a focus on local issues and the enviroment, thye lack the image of a serious party of govenrment however. The BSP and Libertarians degenarate into a lunatic fringe.

How's that? :)
 
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