General Election 2010: Tories offer a deal to Lib Dems

THE Conservatives and the Lib Dems last night began talks on a deal to create a new UK government, as Gordon Brown accepted that Thursday night's defeat to David Cameron had left him clinging on as Downing Street's caretaker.

From left: Cameron the dealmaker; Clegg the dealmaker; Brown the caretaker

At the end of a historic day for Britain's democracy, leaders of the Conservatives spoke directly to their Liberal Democrat counterparts yesterday evening, prior to a weekend of intense negotiations.

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Mr Cameron hopes to persuade Lib Dem leader Nick Clegg to either enter a Tory-led government or give him a guarantee on parliamentary support, in order to allow him to take the keys to Number Ten. But there was growing speculation last night that the talks could yet break down over the Lib Dem "red line" on electoral reform.

And if those talks do collapse, it leaves open the possibility that a defeated Labour Party could still scramble its way back into power, by promising to grant Mr Clegg his wishes.

Last night, however, Mr Brown was being forced to wait in the wings, having lost his position as leader of the largest party in one of the most exciting and closest races in electoral history. As the final seats were counted yesterday afternoon, Mr Cameron was left to rue a near miss as he fell shy of the majority that would have propelled him straight into Downing Street.

The Tories closed with 306 seats, 20 short of a majority. Labour ended with 258 seats, with the Lib Dems on 57, having failed to capitalise on their poll surge during the campaign. In Scotland, Labour won 41 seats, the Lib Dems 11, the SNP 6 and the Tories just one. For the first time in 36 years, the country awoke after election day to discover that they had failed to return a clear result.

The first decisive move of the day came just before 10am when Mr Clegg spoke to reporters outside Lib Dem headquarters in London. As Labour ministers were openly talking up the prospect of a Lib Dem-Labour deal, Mr Clegg dramatically knocked it back, saying he was duty-bound to talk to the biggest party first.

"It is now for the Conservative Party to prove that it is capable of seeking to govern in the national interest," he said.

That game-changing intervention altered the political calculus immediately and, within hours, Mr Brown emerged from Downing Street to acknowledge he was now at the mercy of events, saying he "completely respected" Mr Clegg's decision to speak to Mr Cameron first.

With the Liberals' intentions made clear, Mr Cameron then went further than many expected, to lay out what he described as a "big open comprehensive offer" to the Lib Dems.

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Mr Clegg and Mr Cameron had a short telephone discussion yesterday afternoon during which they agreed to explore further proposals for a programme of economic and political reform.

However, they did not meet in person yesterday. Instead, two delegations from each party held preliminary talks before further discussions expected today and tomorrow.

Among moves being contemplated by Mr Cameron is a surprise plan to replace shadow chancellor George Osborne with Ken Clarke, the last Conservative chancellor, and a more acceptable face for Liberal MPs. There was even speculation that Lib Dem Treasury spokesman Vince Cable could be given the Treasury job if the Lib Dems joined a formal coalition.

More realistically, Lib Dem plans to erase tax on all income under 10,000 could be backed by the Tories. Mr Cameron also warmly talked up the parties' "shared" agenda on education.

However, the main sticking point is set to be Mr Clegg's demand for electoral reform, a move fiercely opposed by the Conservatives.

The Lib Dems want to scrap Britain's first-past-the-post system which once again gave them a paltry return yesterday for their share of the vote.

But the Liberals appeared to be in tumult last night over the key decision on coalition. Mr Cameron stopped short of saying he would agree to the Lib Dem wishes, instead suggesting he may set up a Royal Commission to study electoral reform.

Some Lib Dems said they would be prepared to do a deal which would involve a guarantee of a referendum on electoral reform from the Conservatives. But other senior party figures said that a weak commitment would be "utterly unacceptable" to grassroots members.

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Lib Dem energy spokesman Simon Hughes said: "Whether he (Mr Cameron] can carry his shadow cabinet with him, whether he can carry his colleagues with him, remains to be seen. There are some very diehard people in the Tory Party."

More widely, many activists said that they could not envisage propping up the Conservatives, saying it would go entirely against the grain of their left-leaning membership.

The most likely prospect last night looked to be some kind of deal under which the Lib Dems would remain outside a formal coalition with the Conservatives, but would agree to prevent the Tories losing a vote of no-confidence in parliament.

Such a deal would also be preferred by most Conservative activists. A survey of members yesterday by the website ConservativeHome found that 92 per cent of activists preferred a Tory minority administration over a formal coalition with the Liberals.

Mr Cameron specifically talked up such a "confidence and supply" deal when he spoke yesterday. "The Conservative Party has always been a party that puts the national interest first," he insisted.

"And the best thing, the national interest thing, the best thing for Britain now, is a new government that works together in that national interest and I hope with all my heart that is something that we can achieve." While Mr Clegg stated that he was duty-bound to speak to Mr Cameron first, insiders were noting he did not rule out speaking to Mr Brown should those discussions come to nothing.

That prospect was openly hinted at by Mr Brown: "Should the discussions between them come to nothing, then I would, of course, be prepared to discuss with Mr Clegg the areas where there may be measures of agreement between our two parties."

One Lib Dem insider said: "And we know that they would give us electoral reform hook, line and sinker."

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Set against that, however, is the fact that Labour and the Lib Dems would not, together, have enough votes to claim an overall majority – meaning they would have to win over the smaller parties including the SNP to win the confidence of the Commons.

First Minister Alex Salmond claimed that Labour had already been in contact, but this was vehemently denied by Labour figures last night. "We would rather do a deal with the Tories than the SNP," a senior source said.

That led even Lord Mandelson to admit yesterday that there appeared to be "no alternative" at present to some form of Conservative administration.

An extraordinary few days in UK politics is now guaranteed, with politicians aware that the public – and the markets – are watching their every move.

Amid the confusion, the pound plunged by 2 per cent against the dollar and euro, while the FTSE 100 index fell 2.6 per cent over the day, as markets took fright at the prospect of a hung parliament.

Conservative sources said they were particularly keen to try and get a deal with the Lib Dems this weekend, both to ensure Mr Brown is ejected quickly, and to prevent a feared run on the pound next week, if the markets conclude that the country is facing further uncertainty.

The Conservatives, meanwhile, were pointing out the scale of their success on Thursday night, noting that Labour lost more seats than at any general election since 1931.

Across the UK, there was a 5 per cent swing to the Tories from Labour compared to 2005.

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But the scale of the north-south split was revealed as figures showed that the Conservatives had won 39 per cent of the vote in England, but only 16.7 per cent in Scotland.

What they said - and what they really meant

GORDON BROWN: Should the discussions between Mr Cameron and Mr Clegg come to nothing, then I would be prepared to discuss with Mr Clegg the areas where there may be some agreement between our two parties.

Both of us have made clear our commitment to this (electoral reform] in our manifestos.

WHAT HE MEANT: I can afford to be magnanimous and let Mr Clegg and Mr Cameron hold talks first because I don't think there's a cat in hell's chance they will find common ground, unlike the Liberal Democrats and Labour.

Not only am I willing to discuss electoral reform with Mr Clegg, I was even committed to it before it became the price for staying on in government – look it's even written into our manifesto, unlike the Conservatives.

DAVID CAMERON: I want to make a big, open and comprehensive offer to the Liberal Democrats.

We both agree that Labour's jobs taxis a damaging tax on jobs and we would seek to reverse it.

I believe we will need an all-party committee of inquiry on political and electoral reform.

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WHAT HE MEANT: I am talking up how "big, open and comprehensive" this offer is so when the talks break down everyone knows it's the Liberal Democrats' fault.

Not only do we share common ground but it is in opposition to a Labour policy we both believe is bad for the economy.

I don't want to upset the Lib Dems by dismissing proportional representation out of hand, so will kick it into the long grass instead.

NICK CLEGG: I have said that whichever party gets the most votes and the most seats has the first right to seek to govern, either on its own or by reaching out to other parties, and I stick to that view.

I think it is now for the Conservative Party to prove that it is capable of seeking to govern in the national interest.

WHAT HE MEANT: By "other parties" I do, of course, mean the Liberal Democrats or, more accurately, me.

The Conservatives need a majority to govern and start reducing the deficit and build the economy back up – and I can give it to them – all I ask in return is a change to proportional representation.

It is up to the Conservatives to put aside their mistrust of proportional representation in the "national interest" because if they don't, Labour will.

• Scottish results by constituency

General Election 2010: More news and analysis

• If you are selling your soul, do it properly

Scottish Labour hails divided Britain

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• Conservatives blame Labour scare tactics – and Annabel Goldie

• Nationalists chide 'chippy, nippy' strategy

• Why did they rain on our parade, Lib Dems ask

• 'Victorian' voting system to be overhauled

• No Portillo Moment but big names ditched

• Legal challenges predicted amid reports of polling station chaos

• Axe could fall first on Osborne with Clarke tipped as Chancellor

• Nail-biting victory in capital typifies Labour's hold over Scotland

Analysis

• John McTernan: A race for power that left every runner gasping

• Eddie Barnes: Chances of victory thrown away

• Bill Jamieson: Scots No 1 conservatives (small c) in Britain

• John Curtice: Mould of the two-party system isn't broken yet, but a very large crack has appeared

• Gerry Hassan: Scotland is a different political beast with the Holyrood elections looming

• Brian Monteith: Tories must 'die' to rebuild

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• Joyce McMillan: Forget the Doomsday scenario, here's the Caledonian Paradox

Economy

• Call for swift action on debt mountain as pound suffers

• Bank chief Stephen Hester seeks 'strong stewardship' of economy after election

• Borrowers and investors will pay for further unsettling delay

• Result no shock for mortgage lenders

In brief

• Pamela Nash, 25, becomes the Baby of the House

• BBC's election triumph as 17m viewers tune in

• Green makes history as party's first MP

• Blur drummer fails to be elected - again

• Tory Speaker's wife fails in bid to win seat for Labour

• Bitten but not bitter MP celebrates

• Cameron odds-on to be PM by June

• 14-year-old voter prompts inquiry

• Man arrested over ballot paper protest