The spectacle of Donald Dewar, Labour's First Minister, having to engage in "horsetrading" to create a working majority in the new Scottish Parliament outraged some of the new Labour MSPs. In the most explicit offer of places in his cabinet, Mr Dewar told Labour supporters he would try to reach agreement with the Liberal Democrats. "The best option is genuine coalition, strengthened by the doctrine of collective responsibility and backed by a working majority on the floor of the parliament, which will give us the power to deliver," he said. "We will go into any discussions on agreement with the Liberals on the basis of the manifesto on which we were elected."
He is expected to offer seats to two Liberal Democrats in his cabinet - Jim Wallace (the party leader in Scotland) as minister for agriculture, and Nichol Stephen - but he wants no drawn-out negotiations. He added: "We're nine short of a majority. It is important that we have stable government."
Lord Steel of Aikwood, the Liberal Democrat MSP who put himself forward as a candidate to become speaker of the new parliament, pronounced tuition fees "dead" in Scotland.
But Tony Blair's cabinet ministers were appalled at the prospect of running two different fee systems for students, north and south of the border. "It will cause havoc," said a cabinet source. Scrapping tuition fees would cost Scottish taxpayers about pounds 50m, but would also undermine English universities' ability to raise pounds 300m in fees by 2001.
"We exempted poorer students from paying the fee. All the Liberal Democrats are doing is subsidising middle-class parents at the expense of the working- class kids," said a senior minister.
Mr Dewar was under pressure to insist on a compromise as his talks with Mr Wallace began last night.
After a meeting with his team to discuss tactics, Mr Wallace said: "There is absolutely no question of the Scottish Liberal Democrats joining a Labour Government as a bolt-on. We recognise we are a minority party in this parliament, but the Government should recognise they are in a minority as well."
John McAllion, a Labour member, warned Mr Dewar on the BBC's On The Record programme against using a "stitched-up deal behind closed doors" to gain a parliamentary majority to force through a programme.
In Wales, there were reports Labour plan to rule with a minority administration without a formal coalition.
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