I think under those circumstances Labour would split sooner or later:
Why? Because it has to be, purely because the electoral system has to be 'righted'? (on your own subjective terms) That's not how real politics works. There is no god of Whig history pulling the strings. (Quite apart from the ancestral hatred of splits within Labour itself which renders this a null poss)
That's an overall majority of 276. Among the Tory losses would be Ken Clarke but Hague, Howard and Lilley would all survive to fight out the leadership. I think Howard would win and steward the party until a second but less savage defeat in 2001 after which Hague would take over.
I'm not sure Howard would keep his seat on those figures. (Though curiously there was seemingly no tactical voting in his constituency in 97 and the Labour and Lib Dem vote was almost equally shared) In any case I think it's Hague all the way; I can't see any reason to suppose a bigger defeat (and it's worth putting in perspective that 1997 was clearly seen as the massive rout that it was at the time) or Clarke out of the way would help Howard. (Actually, thinking about it, getting Clarke out of the way would probably only help Hague; he could concievably cruise it in the first round IMO in that situation)
Though consider how delightful the Kensington and Chelsea by-election would be ITTL if Clarke, Portillo and Howard all lost their seats in 1997. There were already about 100 candidates, among them 10 former MPs, up for the selection in OTL.
If Hague
does make that modest revival in the heartland seats that was talked about earlier in the thread, though, then he can probably stay on after 2001. This would not be a good thing for the Tories. Certain internal bloodbath situation in the 2001 parliament worse than that suffered by IDS as a consequence of that, probably with modernisation discredited certainly in the short-term as the ultimate result.
Hmm. That would probably all depend on Portillo being selected at K + C though. Which I don't think is a cert with Clarke in the competition as well. Hmm. I'd have to have a think about this.