In a rare return to the public spotlight, Baroness Thatcher yesterday offered a measure of praise for Tony Blair and underlined the strategic dilemma facing the Conservatives.

"Nobody thought that we would so thoroughly transform our opponents," she told the Institute of Directors annual conference in a recorded interview.

"Indeed, that has been a bit of a problem for the Conservatives; Mr Blair and the Labour Party sound too much like us."

The former prime minister said that Tony Blair had proved "a bold and effective war leader" but also cautioned that New Labour was reverting to "its irresponsible policies of tax and spend".