By Steve Bargeton, political editor

THE RACE is on to find a new leader of the Scottish Liberal Democrats following Jim Wallace’s surprise decision yesterday to stand down after 13 years at the helm.

Mr Wallace shocked colleagues with his announcement that he will also relinquish his post of Deputy First Minister in the Scottish Executive next month when the new Lib Dem leader is expected to be chosen.

He will also stand down as enterprise and lifelong learning minister, forcing First Minister Jack McConnell to reshuffle his front bench team.

The 50-year-old QC and former MP said he intends to retire as the MSP for Orkney at the Scottish Parliament elections in May 2007.

The odds-on favourite to succeed him is Aberdeen South MSP Nicol Stephen, the transport minister, who is today expected to announce his intention to stand.

The other name being mentioned is deputy finance minister Tavish Scott. However, senior Liberal Democrat sources were last night suggesting that Mr Scott is already privately backing Mr Stephen.

A number of Liberal Democrat MSPs publicly backed Mr Stephen within a few hours of Mr Wallace’s announcement. They included deputy education minister Euan Robson, Robert Brown, Margaret Smith and Jeremy Purvis.

Senior party figures are keen to engineer a smooth succession. One insider indicated that meant making sure none of the “awkward squad” was able to mount a serious challenge.

Amongst those who might fall into that category would be health spokesman Mike Rumbles, seen by some as a possible contender.

Mr Rumbles, the MSP for West Aberdeenshire and Kincardine, said, “The most important thing right now for MSPs is to get together at our weekly group meeting in Edinburgh and discuss the way forward.

“I think it would be foolish to discuss who could be a contender before we have discussed it with my colleagues.”

Mr Wallace telephoned senior colleagues on Sunday night to tell them of his decision, and at a press conference in Edinburgh yesterday he gave his reasons for deciding to call it a day.

He described the party’s performance in last week’s General Election—11 seats and 22.6% of the vote—which made them the second largest Scottish party at Westminster, as a “historic result.”

“We had tremendous election results on Thursday night and I thought it was the right time to hand over to a successor,” he said.

“I think there’s always a problem that party leaders have of not quite knowing when you’ve overstayed your welcome. I don’t want to really encounter that problem. I’d rather go now and I can go knowing that I’m handing on a party that’s in good form, it’s confident and is clearly moving forward.”

Mr Wallace would not be drawn on whether he believed the Liberal Democrats should go in to a third coalition with Labour after the 2007 Holyrood elections.

“It is in government that you get things done. I don’t necessarily accept that we should always be the junior partner in coalition,” he said.

“As I’ve said, I think the Liberal Democrat flame can burn brighter still, and I hope that I have put the party on course that my successor would be up there with a fighting chance of being First Minister in his or her own right.”

He insisted he has been under no pressure from within the party to quit and said he was taking “no position” on the leadership.

First Minister Jack McConnell said, “Jim Wallace was one of the architects of devolution through the constitutional convention. He has made a very significant contribution to Scotland.

“He has been a very good friend and a reliable colleague. I wish him and his family all the best for the future.”

Scottish Tory leader David McLetchie said, “Jim Wallace has made a significant contribution to Scottish politics since 1983. It has been no mean feat to simultaneously lead a party of government and a party of opposition over the last six years and he deserves credit for pulling it off.

“Jim is a decent and honourable man and I wish him and Rosie well for the future.”