Conservatives dangle prospect of cabinet jobs to entice Lib Dems

After election proves to be inconclusive, confrontation turns to compromise as Cameron struggles to secure the top job
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Nick Clegg held the casting vote on who will govern Britain last night as both the Conservatives and Labour redoubled their efforts to lure the Liberal Democrats into a partnership deal after the most closely fought general election in decades ended in stalemate.

The Liberal Democrat leader faced an agonising dilemma as he opened talks with David Cameron, whose party emerged with the most seats and votes but fell 20 seats short of an overall majority. Senior Labour figures warned Mr Clegg not to "give the country a Tory government" and he was warned that he would face a revolt in his own party if he accepted the deal offered by Mr Cameron yesterday.

The Tory leader, who is prepared to enter a coalition with senior Liberal Democrats sitting in his Cabinet, promised an all-party committee of inquiry into the electoral system as part of what he called "a big, open and comprehensive offer to the Liberal Democrats".

Mr Brown went further by promising immediate legislation on changing the voting system. Labour would advocate a "Yes" vote in a referendum in October next year on switching to the alternative vote, in which people rank candidates in order of preference.

Today Mr Clegg will meet his party's depleted ranks of 57 MPs and its influential federal executive committee. But senior figures warned him that Mr Cameron's proposed review was not worth the paper it was written on. They want him to form a "progressive alliance" with Labour – but say cabinet ministers will first have to persuade Mr Brown to stand down now that he has been rejected by the voters.

Lord Oakeshott of Seagrove Bay, a Liberal Democrat Treasury spokesman, told The Independent: "We don't need an inquiry to prove that winning one-eighth of the seats with one-third of the votes is daylight robbery. It is exactly what Sir Edward Heath offered Jeremy Thorpe in 1974."

When the February 1974 election resulted in a hung parliament, the Tory Prime Minister spent a weekend trying to persuade Mr Thorpe's Liberal Party to support the Tories but the talks collapsed and he resigned.

Tories accused Mr Brown of "squatting" in Downing Street and there is speculation that he might have to fall on his sword to allow Mr Clegg to form a "progressive alliance" with Labour under a new leader. A Liberal Democrat MP said: "Brown is in denial. He is like someone who has been sacked but still doesn't realise it is all over. There is scope for a deal – but Labour has got to tell Gordon the game is up." But Mr Brown might not quit immediately – as that could give Mr Cameron the chance to form a government.

Lord Mandelson, who headed Labour's campaign, appeared to hint that Mr Brown's future could be uncertain. "There will be a number of permutations," he said. "I am not ruling anything in, or anything out."

However, Mr Cameron appeared to be in pole position last night as his party opened formal talks with the Liberal Democrats. The Tory leader had a 10-minute telephone discussion with Mr Clegg yesterday afternoon, when they agreed to "explore further proposals for a programme of economic and political reform". Tory sources described the conversation as "convivial".

Amid jitters on the financial markets, the pound crashed to a 13-month low against the dollar, before recovering as the political horse-trading got underway. Senior Tories hope that an agreement with the Liberal Democrats will be reached by Monday – either a coalition or an informal agreement on key policies which would allow Mr Clegg's party to support a minority Tory government in crucial Commons votes.

With the final results in, the Tories won 306 seats, 97 more than at the last election but short of the 326 needed for an overall majority. Labour won 258, or 91 fewer than last time. The Liberal Democrats won 57 seats, down five on 2005, a bitter disappointment.

On a dramatic day at Westminster, the telephone lines rang hot between Tories and Labour politicians and Liberal Democrats with whom they have personal links. In public, Mr Brown and Mr Cameron jockeyed for position as they tried to woo Mr Clegg.

The Prime Minister pre-empted a statement by the Tory leader, admitting that it was right for Mr Clegg to talk to Mr Cameron, but added: "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". He highlighted the "common ground" between Labour and the Liberal Democrats on electoral reform and the economy, including the need for state support to continue until the recovery from recession is firmly in place.

Forty-five minutes later, Mr Cameron said there could be a minority Tory administration on a "confidence and supply" agreement, under which smaller parties committed themselves not to bring the government down in return for assurances on key policy areas. But he made clear he would prefer a "more stable, more collaborative" arrangement which would enable the country to have a settled government at a time of grave economic difficulties.

The Tory leader signalled his readiness to adopt Liberal Democrat priorities, including scrapping ID cards, promoting green industries and helping poorer schoolchildren, and to work together on a version of Mr Clegg's flagship policy of taking earnings under £10,000 out of income tax. But he assured Tory activists he would give no ground on Europe, the Trident nuclear deterrent, immigration or the need to start paying off Britain's record £163bn deficit this year.

What they said....and what they meant

Gordon Brown

With the outcome of the general election we find ourselves in a position unknown to this generation of political leaders, with no single party able to have a Commons majority. The question for all the parties now is whether a majority can be established that seems to reflect what you, the British people, have just told us.

On the critical question on the formation of a government which can command a parliamentary majority, I... understand and completely respect the position of Mr Clegg in stating that he wishes first to make contact with the leader of the Conservative Party.

As you know we already have in place mechanisms that will give the political parties any civil service support that they may need. Mr Cameron and Mr Clegg should clearly be entitled to take as much time as they feel necessary.

For my part, I would be willing to see any of the party leaders. Should the discussions between Mr Cameron and Mr Clegg come to nothing, I would of course be prepared to discuss with Mr Clegg [any areas of] of agreement between our two parties.

There are two such areas in particular: the plan to ensure continuing economic stability, and the plan to carry through far-reaching political reforms, including changes to the voting system.

Both of us have made clear our commitment to this in our manifestos, and the electorate has sent us a strong message, which must be heard. We need immediate legislation on this [so that we can] begin to restore public trust in politics. [For us to do this], a fairer voting system is central. I believe that you, the British people, should be able to decide in a referendum what the system should be.

I understand, as I know my fellow party leaders do, that people do not like the uncertainty or want it to be prolonged. We live, however, in a parliamentary democracy, and the outcome has been delivered by the electorate. It is our responsibility now to make it work for the national good."

*Gordon Brown is mixing statesmanship with calculated political manoeuvring.

He is determined to appear dignified and prime ministerial while the make-up of the next government is being negotiated.

More importantly, he is trying to convey to Nick Clegg, and his reduced band of Liberal Democrat MPs, that they have far more in common with Labour than with the Tories. Offering immediate legislation to hold a referendum on scrapping the first-past-the-post voting system is a powerful inducement to the Liberal Democrats who have long called for proportional representation.

Mr Brown was deliberately vague about what form of electoral reform he proposes, suggesting he could offer a referendum on the sort of highly proportional method favoured by the Liberal Democrats.

His promise to work together on a "plan to ensure continuing economic stability, where there is substantial common ground" is a reminder that Labour and the Liberal Democrats agree on the need not to wield the spending axe too early. Mr Brown is asking: "Do you really want to be associated with the heavy cuts that the Tories would order in an emergency Budget next month?"

The Prime Minister's overall message is that Liberal Democrats would find a more natural home with Labour. And that, whatever happens, he is determined to stay in Downing Street for as long as possible.

Nigel Morris

Nick Clegg

*Last night was a disappointment for the Liberal Democrats. Even though more people voted for us than ever before it is a source of great regret to me that we have returned to Parliament with fewer MPs than before. Many, many people during the election campaign were excited about the prospect of doing something different. It seems that, when they came to vote, many of them in the end decided to stick with what they knew best. At a time of great economic uncertainty I understand those feelings. But that's not going to stop me redoubling my efforts and our efforts to show that real change is the best reassurance that things can get better for people and their families, that it shouldn't be something that unsettles people.

Now we're in a very fluid political situation with no party enjoying an absolute majority. In a situation like this, it's vital that all political parties, all political leaders, act in the national interest and not at narrow party political advantage. I've also said that whichever party gets the most votes and the most seats, if not an absolute majority, 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.

It seems this morning that it's the Conservative Party that had more votes and more seats but not an absolute majority. And that is why I think it is now for the Conservative Party to prove it is capable of seeking to govern in the national interest. At the same time, this election campaign has made it abundantly clear that our electoral system is broken. It simply doesn't reflect the hopes and aspirations of the British people. So I repeat again my assurance that whatever happens, I will continue to argue not only for the greater fairness in British society, not only the greater responsibility in economic policy making, but also for the extensive reforms we need to fix our political system.

*It may be that Nick Clegg's disarming declaration that he would stick to his campaign pledge to back whichever party got the most seats and votes now that the hung parliament is reality may be just that – a rare example of a politician simply delivering a promise with no strings attached. The lack of guile and calculation, at least at first glance, looks like an expression of the new politics.

Maybe not, though. Mr Clegg is a very clever man – much underestimated by his rivals – and one doubts that he is the compete naif that he is sometimes painted. He has taken the initiative from Gordon Brown, who one suspects Mr Clegg may feel is not a man he can trust.

He has thus started to play the two leaders off against each other. He has Mr Brown's pledge of a referendum on electoral reform in his pocket, but he knows that propping up this Prime Minister, or possibly his party, is stretching the democratic elastic a little far. Now he can push and see what he can get from the Conservatives.

David Cameron knows what Mr Brown's offer is and that he will need to trump it. Mr Brown will then have to match Mr Cameron's counter-bid – meaning he has to resign and make way for a Miliband or Alan Johnson. The semi-public auction for his votes Mr Clegg is conducting may be very clever; but it feels like the old politics.

In the midst of all this horse trading Mr Clegg will be plunged into clashes with his own party. Should he go too far down the aisle to either Mr Cameron or Mr Brown, the party's intricate safeguards to protect its independence may stop him from doing a deal – even if he wants to.

Sean O'Grady and Michael Savage

David Cameron

*At yesterday's general election the Conservative Party gained more seats than at any election for the last 80 years. But we have to accept that we fell short of an overall majority.

Nick Clegg has said that we should have the chance to form a government and I thank him for that. So we will now begin talks to see how that can be done. One option would be to give other parties reassurances about certain policy areas and then seek their agreement to allow a minority Conservative government. But I am prepared to consider alternative options.

I want to make a big, open and comprehensive offer to the Liberal Democrats. Let me explain my thinking. First, it is right and reasonable to acknowledge that there are policy disagreements between us. I do not believe any government should give more powers to the European Union. I do not believe that any government can be weak on the issue of immigration. I also believe it is reasonable to expect that the bulk of our manifesto should be implemented.

But there are areas that we can give ground. I recognise the high priority that the Liberal Democrats have given to the proposal for a pupil premium in our schools. They have made the achievement of a low-carbon economy an absolute priority and we support this aim. They have also made proposals to reform our tax system. We are happy to give this aim a much higher priority.

We share a common commitment to civil liberties and to getting rid of the ID card scheme. On our political system, we agree with the Liberal Democrats that reform is urgently needed. The Liberal Democrats have their ideas, we have our ideas. So I believe we will need an all-party committee of inquiry on political and electoral reform.

So I think we have a strong basis for a strong government. Inevitably the negotiations we are about to start will involve compromise – that is what working together in the national interest means.

* David Cameron carefully targeted key Liberal Democrat manifesto commitments with his "big, open and comprehensive" offer of a deal. Older Conservatives from the Thatcher generation – from Lord Heseltine to Lord Tebbit – say he should run a minority Conservative government.

That could work like the minority SNP government in Scotland by allowing the Liberal Democrats to pick and choose what they support. But Mr Cameron and his key advisers decided that it would be too unstable, and may not be strong enough to withstand the shock of a run on sterling in the markets on Monday.

Mr Cameron offered a full coalition to Nick Clegg, including seats in a Conservative Cabinet, and he wants the deal to be sealed before the markets open on Monday. On some things, he said they already agree – such as scrapping the ID cards scheme, and reversing the 1 per cent increase in national insurance contributions. There would have to be give and take – the Liberal Democrats' plan to abolish Trident and offer an amnesty to illegal immigrants were both out.

In would be a low-carbon economy (that could mean another tax on jet travel); a pupil premium in schools to give extra money to schools in poorer areas, and lower taxes on the low paid. The sticking point could be the offer of a committee to review the Liberal Democrats' demand for electoral reform. It may be too weak to win over the party's doubters.

Colin Brown

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