PRIME Minister John Major's worries worsened considerably yesterday when his ruling Conservative Party was devastated by the biggest by-election swing against them since 1935. The 29 per cent swing at the central England seat of Dudley West would reduce the Conservatives to a rump group of just a few MPs if it translated to a general election. The disastrous result for the Government let in Labour candidate Ian Pearson with 28,400 votes, a majority of more than 20,000. The Conservatives' Graham Postles received less than a fifth of the votes - 7,706. The Liberal Democrats, who traditionally fare well in by-elections, instead came third with just 3,150 votes. It was the kind of morale boosting win crucial to Tony Blair's new leadership of the Labour party and he described it as 'an extraordinary victory, a devastating defeat for the Government'. 'It is a test of not just how unpopular and discredited the Government is but also a test of new Labour. People are turning to us and our ideas but we are not in any shape or form complacent.' Mr Major, visiting a flag factory in Cambridge, said: 'It was a very poor result, but I think some good will come out of it. People within the party must now realise they must pull together towards the same end for the good of the country.' Tory chairman Jeremy Hanley said the result was 'extremely disappointing' but it would not divert the party from policies which were bearing fruit for the country. The task was to convince people that policies benefitting the nation also benefited them as individuals. Local Conservative organisers were angry with the Government, warning it must start to listen to activists who have told Central Office it is out of touch with public opinion. Senior backbencher Sir Rhodes Boyson said the party had to get back on track if it was to win the general election. 'We have to get back to the policies on which we fought the last general election and show people that we mean it.' 'At the moment they do not believe that we mean it. They know they are paying more taxation, they are concerned by whatever the statistics are on the question of law and order and we have to return to being the historic Conservative party on which we won the last election.' Another senior MP called for a return to basic Tory policies, a squeeze on public expenditure and a reduction in taxes. There needed to be strong initiatives on law and order and a referendum on further European integration. The result was deeply satisfying for Labour, often pushed aside by the Liberal Democrats. In the past the Conservatives have been able to write off third party triumphs by the Liberal Democrats as protest vote, but the swing in this result confirms that traditional Tory voters are now moving to Tony Blair's reformed Labour party instead. The Tories knew they had little chance of holding Dudley West, where the by-election was caused by the death of the sitting MP, but they had hoped for at least a glimmer of an upturn in their fortunes. Factors that could come to the rescue in the 21/2 years before they have to hold an election are the increasing strength of the economy, falling unemployment and the prospect of tax cuts.