Liberal Democrats to hand power to David Cameron

DAVID Cameron and Nick Clegg held their first face-to-face talks since last week's election yesterday evening as party figures began to talk up the likelihood of a Tory minority government held up by Liberal Democrat support.

•Nick Clegg (left) and David Cameron and due to continute talks today

The party leaders, who together have the seats to run the country for the next five years, spent 70 minutes alone in Admiralty House in Whitehall to discuss the path they will follow over the coming historic hours.

Formal talks will begin today at 11am, when the two parties will discuss whether or not they can reach an agreement which would install Cameron as Britain's next prime minister.

As the public spends its third day since the election without a clear result from Thursday's poll, the first indications of a possible deal were emerging.

Senior Lib Dem sources warned that the gaping policy gulf over the crucial issue of changes to the voting system would make any formal coalition near impossible.

Instead, the two parties are preparing to consider a looser arrangement under which the Lib Dems, while remaining in opposition, would agree to hand the Conservatives parliamentary support in return for a series of key concessions on the economy and political reform.

Today, the pressure on both leaders to finalise a deal will hot up amid fears that any further uncertainty will trigger a run on the pound tomorrow when markets open.

The deal which looks increasingly likely is a "confidence and supply" arrangement under which the Lib Dems would agree to abstain from crucial votes in the Commons, thereby preventing the Conservative government from falling.

The Lib Dems would demand that such an agreement has a fixed time-scale, perhaps of about two years, so that there can be no chance of Cameron attempting to seek a fresh election.

In unprecedented scenes in London yesterday, 1,000 people took to the streets to demand electoral reform. They marched to the building where Clegg was holding talks with colleagues, and handed in a petition urging him not to sell out to the Tories.

Responding to the protest, Clegg said: "It's in the interests of everybody in Britain for us to use this opportunity to usher in a new politics after the discredited politics of the past. The fact that you are here because you care so much about political reform is absolutely wonderful."

A deal without proportional representation, which would give the Lib Dems more seats to reflect their share of the vote, would be a major disappointment for activists, who believe they have their best chance for 35 years to deliver a fairer electoral system.

But senior Lib Dem figures around Clegg are pessimistic about other options. While the Lib Dems are understood to be still considering talking to Labour if talks with the Tories break down, they believe that even then they will not get a guarantee on PR. Several

Labour MPs yesterday declared they too would refuse any deal on electoral reform, saying they backed the first-past-the-post system.

On the Tory side, the difficulties of a full coalition deal were also emerging yesterday, as Cameron was warned explicitly that he could face turmoil among the grassroots.

Former party chairman Lord Tebbit said: "I would support Mr Cameron absolutely if he were to set out his stall on the Conservative manifesto. But if he were to be pushed around by Mr Clegg, then it would be very difficult.

"On PR, he (Mr Clegg] should be put in a locked cupboard and told to go away while the big boys sort it out."

The Lib Dems will still seek to extract concessions from the Tories today. Clegg yesterday was careful to identify electoral reform as just one of four key areas that will form the basis of the talks.

The four key areas, he said, were fairer taxes, including abolishing tax on income beneath 10,000, changes to the education system to boost the chances of poorer pupils, a new approach to the economy and political reform.

In a message to Conservative activists, Cameron declared that, on tax reform, he was prepared to deal, saying he was happy to work "with the Liberal Democrats to see how we can afford to reduce taxes on the lowest paid. "Of course, we hope to see a similarly constructive approach from the Liberal Democrats – not least on the urgent issue of tackling the deficit."

However, First Minister Alex Salmond said that the Lib Dems did not have to deal solely with the Tories.

He proposed that Labour, the Lib Dems and the smaller parties consider plans to form a coalition which, he said, could form a majority to keep the Conservatives out of No 10.

Salmond said: "The assumption by some that the only option now available for a new UK government is a Tory-Liberal pact is not correct. There are alternatives and far more progressive outcomes available should politicians have the will to seize the moment. Plaid and the SNP are indicating that we do."

Before that, however, the expectation is that the Tory-Lib Dem talks will continue until at least tomorrow evening.

Should they conclude then with a firm deal to create a government, it could be Tuesday before Gordon Brown visits the Queen to hand in his resignation.

Brown yesterday attended the VE Day commemoration at the Cenotaph with the other two main party leaders before deciding to leave Downing Street and return to his home in North Queensferry.

His weak grasp on power was then underlined when a new Labour MP, John Mann, called on the Prime Minister to step down.

Mann, who was elected on Thursday for the constituency of Bassetlaw, said: "Whatever happens in the next few days, Gordon Brown should not lead Labour into any future election and he should stand down before the next Labour Party conference. "

Meanwhile, a poll today shows two thirds of voters think Brown should concede defeat in the general election and clear the way for a new prime minister.

A separate BPix poll showed 58 per cent of voters want Cameron to rule in a minority Tory government. That was 11 per cent more than those who backed a formal Tory-Liberal coalition.

More General Election coverage

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• Liberal Democrat leader Nick Clegg faces dilemma over deal as pressure mounts for government to be formed

• Missed opportunity to increase number of women MPs

• Hamish Macdonell: How the general election battle was won and lost

• Peter Jones: Scotland gets the blues over Tory government at Westminster

• David Torrance: Mutual respect is crucial as Tories bid to govern Scotland