'Crunch time' as parties jockey for power

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Negotiations between the political parties over the shape of the next government were reaching a heightened pitch today, with some sources expecting a conclusion before the end of the day.

Labour and Liberal Democrat teams are expected to meet again after commencing formal talks last night on a possible coalition.

And the Lib Dems are also considering a fresh offer from Conservatives of a referendum on the Alternative Vote voting system for Westminster elections in return for a coalition deal which would put David Cameron in 10 Downing Street.

Lib Dem MPs and peers discussed their options for more than two hours in a meeting at the House of Commons that stretched on past midnight.

Speaking as the meeting broke up, party leader Nick Clegg said: "We are keen to settle things as soon as we can. I am as anxious as anyone else."

Negotiator David Laws described the meeting as "good and extensive" and said MPs and peers would gather again today. And a party spokesman said MPs and peers had "endorsed the strategy set out by Nick Clegg and agreed that current negotiations need to be concluded rapidly to provide stable government that lasts".

After four days of discussions following the inconclusive General Election, Lib Dems and Tories appeared to be heading towards some sort of agreement yesterday, when Prime Minister Gordon Brown pulled the rug from under his rivals' feet with a sensational announcement that he was standing down as Labour leader.

Mr Brown revealed he had been approached by Mr Clegg for formal talks over a possible deal with Labour and made clear he was ready to stay on as PM in a power-sharing coalition until a successor as Labour leader could be chosen.

Both Labour and Lib Dems last night described initial talks as "constructive". One senior Lib Dem source said a decision one way or another could come within 24 hours, describing today as "crunch time".

Senior MP Simon Hughes said he believed a deal should be possible today. "We are keen to conclude them as soon as is practically possible, and I would imagine that should be possible - should be possible - during the rest of what is now Tuesday," he said.

He dismissed the notion of a "rainbow coalition" involving nationalists and Greens, saying: "I don't think rainbow coalition is a phrase that we'd buy.

"There is a conversation with Labour to see if we can deal with Labour, that's a serious conversation in its own right, and there is a conversation with the Tories to do a deal with the Tories, a serious conversation in its own right - and those are the only two conversations going on, and a deal would be with either of those. And they are both being pursued with equal vigour. There is no favoured deal."

At a hastily-arranged Cabinet meeting at 10 Downing Street following Mr Brown's declaration yesterday, potential contenders for the succession agreed that they would not announced their candidacy until the outcome of talks on the shape of the Government were concluded.

Labour's ruling National Executive Committee will discuss the leadership contest in a scheduled conference call today, but is thought unlikely to make decisions on its process or timetable at this stage.

Harriet Harman said last night she did not intend to stand for the leadership, telling BBC2's Newsnight: "You can't run for leader at the same time as being deputy leader. It is my plan to stay deputy leader."

Others tipped as possible candidates include Foreign Secretary David Miliband, his brother the Energy Secretary Ed Miliband, Schools Secretary Ed Balls, Home Secretary Alan Johnson and Justice Secretary Jack Straw.

A meeting of the Lib Dem parliamentary party at lunchtime yesterday appears to have put the skids under a deal with the Tories, after both sides' negotiation teams said that progress was made in 90 minutes of discussions yesterday morning.

After Mr Clegg addressed his MPs and peers in the two-and-a-half hour meeting, the party demanded "clarification" from Tories on issues including electoral reform, education funding and fairer taxes before entering into any pact.

Shadow foreign secretary William Hague later revealed that while talks had previously revolved around a "supply and confidence" arrangement under which Lib Dems would not enter a formal coalition but would agree not to bring down a minority Tory administration, Mr Clegg's party was now insisting on "a coalition with one side or the other".

He made the dramatic concession of a referendum on AV - something which Labour had previously offered in a bid to woo the Lib Dems.

Under the AV system, voters rate candidates in a single-member constituency in numerical order and votes are redistributed until one candidate has more than 50% support. Liberal Democrats do not regard it as proportional, preferring the Single Transferable Vote system, which would produce a result in line with the proportion of votes cast for each party.

However, shadow cabinet minister Michael Gove later revealed that Tory MPs would be given a free vote on any legislation to ditch first-past-the-post elections.

His accusation that Labour planned to change the voting system for Westminster elections without putting it to the public in a referendum was dismissed as "a Conservative scare story" by Ms Harman.

Mr Gove declined to comment on rumours racing round Westminster that Mr Cameron had promised to give Cabinet jobs to right-wingers Michael Howard, Iain Duncan Smith and David Davis to buy the support of sections of his party unhappy at the prospect of coalition with Lib Dems and electoral reform.

The shadow schools secretary said that Tories had "moved towards" the Lib Dem proposal to make the first £10,000 of earnings tax-free in negotiations, while Mr Clegg's party had shown willingness to compromise on Conservative demands for swift action on the deficit.

Caroline Lucas, leader of the Greens and the party's only MP at Westminster, said the Liberal Democrats had an opportunity to push through a "thorough change to our rotten political system".

She told the BBC Radio 4 Today programme: "We shouldn't be fobbed off by titbits from the Tory table.

"What we need to is to seize this moment and put genuine political and electoral reform absolutely at the heart of any package."

Cabinet Office Minister Tessa Jowell said Labour was responding to an invitation from the Liberal Democrats to discuss the possibility of co-operation.

"The country did not vote last week for a majority government and until there is another government we, as members of the Cabinet, stay in office," she told GMTV.

"I think that people would accept that it is our obligation to try to provide a stable government for the country and, if the Liberals come to us and say can we discuss with you the possibility of co-operation in circumstances where no party has an overall majority, then I think that people would feel we were pretty irresponsible if we said no."

Angus Robertson, the SNP's leader at Westminster, said he believed a so-called "rainbow coalition" could work, claiming agreement could be reached between the parties based around economic stability, proportional representation and improved governance.

He told the Today programme: "I think parties of the centre-left have a responsibility to talk, to work together.

"Given that the parties in Wales, Scotland and Northern Ireland are parties of government, we have experience in coalition arrangements and we understand that stability across parties in a coalition, or an agreement, is a given.

"But it is up to the Labour Party and the Lib Dems to talk to other parties to work out whether that is what they really want."

He added: "The idea that Labour MPs, people even like (former Cabinet minister) John Reid would overnight say 'I'll tell you what - we are just going to give up and we are going to let the Tories rule for the next four years' when there is a majority opinion across the UK that could support a progressive alliance, would be totally unacceptable in many parts of the UK, not least in Scotland."

Shadow Chancellor George Osborne denied that his party was "livid" with the Liberal Democrats.

He described the Conservatives' offer to the Liberal Democrats of a referendum on the Alternative Vote system for Westminster elections as their "final offer" on electoral reform.

"We have had very good constructive talks. I have been part of the negotiating team from the Conservative side and we have talked about the economy and deficit reduction, and actually the Liberal Democrats and the Conservatives were the most up-front in the election about the need to tackle that problem," he told BBC Breakfast.

"But we have also talked about the green economy, about civil liberties where there is a lot of common ground, about fairer taxation too, on some of the really substantive issues over a period of days... we have made some real progress."

He denied that the offer of a referendum on the Alternative Vote system from the Conservatives had been made as a result of Gordon Brown's announcement that he is to step down as Labour leader.

"We were discussing offering that beforehand, we were discussing it with our Shadow Cabinet beforehand, so the resignation of Gordon Brown had no impact on that," he said.

"But we make it in good faith, we understand that the Liberal Democrats, for them this is a very, very important issue, and we have made the offer of a referendum, let the public decide rather than the politicians about the voting system."

Asked if the Conservatives had made their final offer - and if there was anything left for them talk about with the Liberal Democrats, he said: "We are always willing to talk to people, I am very happy to have further discussions about any points of clarification they want on the offer we are making.

"Our offer of the referendum on electoral reform, that is our last offer in that area, we have made our offer. David Cameron went to the Parliamentary party of the Conservatives, now almost double the size it was just a few weeks ago, and explained why we are making this offer, and that it is our final offer on electoral reform."

Former home secretary John Reid said he thought a Labour-Lib Dem pact would be the wrong decision for the country and could damage the Labour Party.

He told GMTV: "I think, like everyone else, all I want is the best for the country.

"If the Labour Party does that I think they will get the reward from the electorate.

"I think a Lib-Lab pact would be the wrong thing for the country.

"I fail to see how trying to bring together six different parties - and even then not having a majority - will bring the degree of stability we need."

He added: "The problem is that if we take that decision which most people will regard as not bringing stability then it may be perceived as acting in our own self-interest.

"The public aren't daft."

Mr Reid said Labour had the option of going into opposition and holding a new leadership contest "in the course of which we will re-find our way".

"Don't forget we have just had the biggest loss of seats in Labour's history," he said. "If we are perceived to be responding to that by ignoring it and by trying to cobble something together that patently isn't in the national interest then we will face the same thing in the future."

David Cameron left his north London home at 8.45am.

He told reporters outside that it was "decision time".

After reading the morning papers over breakfast, Mr Clegg emerged from his semi-detached home with his wife to take their sons to school.

"I'll talk to you later," he told reporters.

Mr Cameron told reporters that his "over-riding concern" was for a "good, strong, stable government that is in the national interest".

He said: "I've made a very full, very open, very reasonable offer to the Liberal Democrats to deliver that stable government.

"My own Members of Parliament have shown that they are prepared to put aside party interest in the national interest by agreeing a referendum on the Alternative Vote.

"It's now, I believe, decision time - decision time for the Liberal Democrats - and I hope they make the right decision to give this country the strong, stable government that it badly needs and it badly needs quickly."

Mr Cameron then got into his car without taking any questions from the large crowd of journalists outside his house.

Former Liberal Democrat leader Lord Ashdown told the Today programme: "Is it best for the country to have a rabidly anti-European party in power when we believe... I agree with what George Osborne has said - they have been extremely tolerant, progressive, and I think this has been very good talks indeed.

"All they have said is right. There has been a fundamental change in the tone of the discourse in British politics and I am greatly in favour of that and we initiated it and I think the Tories and Labour have responded to it.

"But here is the question, you will have a party in power that is rabidly anti-European.

"We may have to stomach that in the interests of the nation, but you have on the one hand the question of stability and the other the question of what is the programme that is best for the country.

"These are difficult decisions."

Put to him that he had said previously said the country could not be governed in a "rainbow coalition", he appeared to suggest that a minority Liberal Democrat-Labour coalition without the other smaller parties could work.

The peer said: "You should not presume from anything I have said the recommendation I am going to make for my party - that is between me and my party.

"If this was a coalition made up of what you might call the panjandrum elements that you suggest, I would not be in favour of it.

"It is a coalition made up of Liberal Democrat and Labour in which we would dare the other elements if they wished to vote us down and, I can tell you, I can think of no political circumstances where that would happen.

"I hold firmly to the view that a coalition made up of all those people that you discuss would not be appropriate and I stick to the view that I made the other day.

"But a minority Lib-Lab coalition, I think, can provide stability because, although there is a technical majority against it, I can see no political circumstances in which that can be assembled."

Liberal Democrat energy and climate change spokesman Simon Hughes expressed his hope that a deal could be reached today - with either the Conservatives or Labour - but added that he could not "promise" this.

"I can't promise that because obviously the ball is not entirely in our court, it is equally in the court of the other two parties," he told BBC Breakfast.

"Our view has always been that we need to get a conclusion as soon as possible, certainly within this working week, we have had four days since the election results were declared.

"We want to get a deal secured but it is very important that it is a deal that lasts, it is a deal that is well worked out and it is a deal that commands the confidence both of own parties and that can command the confidence of the British public."

Mr Hughes was asked about the assumption that the Liberal Democrats were going to focus their discussions on the Conservatives, and only when those finished would they turn to Labour.

He said: "The chronology was not entirely of our making. We started formal conversations with the Conservatives, they have made significant progress, there has been a large measure of agreement which has been extremely encouraging.

"On the issue of electoral reform, the offer that appears to be the latest offer is that there will be the referendum... on a change to the voting system, the Alternative Vote.

"The talks with Labour began later because they made an offer to have talks. We thought it was right and proper to respond again. A coalition between Labour and the Liberal Democrats would represent a majority of the votes in the country."

Mr Hughes indicated this morning that the Lib Dems were holding out for further concessions from Labour as the price for a centre-left coalition.

"Labour need to think further and go further before there will be any prospect of any arrangement with them," he told Sky News.

"I think we know what the Conservatives' offer is, they've made that public, they've made public what they are saying about a referendum on a form of change to the voting system.

"They've moved positively and constructively on other things, including fair taxation.

"We are waiting really to see whether Labour are willing to make progressive suggestions."