In uncertain times, Cabinet secretary holds key to power

Constitution may allow the PM to stay on

A question: in which country could a prime minister see his party come third in a general election and remain in office? A banana republic? A dictatorship? Answer: Er... well, no, Britain actually.

If yesterday's election results in a hung parliament, the guiding star will be the Cabinet Office "manual", which says that the prime minister should remain in office because the country must always have a functioning government. In theory, this could allow Gordon Brown to hang on and try to forge an anti-Tory alliance with the Liberal Democrats even if the Conservatives win more votes than Labour.

The guidance raises another bizarre prospect: the Chancellor Alistair Darling could in theory have lost his Edinburgh South-West seat and yet remained at the Treasury helm over the weekend if there were negotiations between parties on forming a coalition or understanding. He could even handle a sterling crisis if there were one, even though he would no longer be an MP.

Of course, Mr Brown could decide that he had "lost" the election and resign even if David Cameron falls short of winning an overall majority when the final results are known today. But there are signs that he may try to hang on in Downing Street if the Tories are about 30 or more seats short of the 326-seat "winning post". Some cabinet ministers speak privately of the need to stop the Tories winning 300 seats for a Labour deal with Nick Clegg's party to be viable, but there are no hard and fast rules.

In theory, Mr Brown might have until 25 May – the date of the state opening of Parliament – to stitch together a deal with the Liberal Democrats. The Whitehall "manual", recently updated by the Cabinet Secretary Sir Gus O'Donnell, says: "Where an election does not result in a clear majority for a single party, the incumbent government remains in office unless and until the prime minister tenders his and the government's resignation to the monarch. An incumbent government is entitled to await the meeting of the new parliament to see if it can command the confidence of the House of Commons or to resign if it becomes clear that it is unlikely to command that confidence."

In practice, the financial markets and the media would be looking for a much quicker resolution of such a stalemate. In February 1974, the Tory Prime Minister Sir Edward Heath won slightly fewer seats than Labour and spent a weekend trying to woo the Liberal Party before giving up and resigning on the Monday after the election. Unlike many other countries, Britain is used to quick government transitions and seeing a defeated prime minister packing his bags the day after the election.

Although it will all depend on the final numbers which emerge today, there are circumstances in which Mr Cameron might well claim victory while Mr Brown refuses to concede defeat and tries to cling on. In an interview with The Independent this week, the Tory leader revealed that he was ready to challenge the Whitehall rulebook in such circumstances. He said: "There is convention and there is practice and they are not always quite the same thing." He added: "In 1974 it was clear the Conservatives had lost and therefore they were out of office."

Privately, the Tories are worried that Mr Brown might try to hang on. They say they were not consulted about the later than usual Queen's Speech, claiming it would be "anti-constitutional" for civil servants rather than elected politicians to be in the driving seat.

The three most important officials in a hung parliament would be Sir Gus; Jeremy Heywood, the permanent secretary at Downing Street and Christopher Geidt, the Queen's private secretary. One Whitehall insider said: "The name of the game is to keep the monarch out of it at all costs."

And yet the Queen could be drawn in – for example, if Mr Cameron challenges the interpretation of the "manual", or if Mr Clegg refuses to do a deal with Mr Brown but hints that he might reach agreement with a different Labour leader such as David Miliband or Alan Johnson. The Queen might also have to decide whether to grant a dissolution of Parliament so that a second election is held. The "manual" suggests she would deny such a request from Mr Brown but allow it if it were made by Mr Cameron if he headed a minority government.

Whitehall dismisses the Tory criticism of the revised rules, saying a delayed Queen's Speech was recommended by the cross-party Commons Modernisation Committee three years ago. The aim is to allow the large number of new MPs to settle in and for new ministers to get to know their departments and to prepare legislation.

Experts agree. Professor Robert Hazell, director of the Constitution Unit, and Peter Riddell, senior fellow at the Institute for Government, said the "manual" is a balanced and accurate statement of the existing constitutional conventions. "By making these guidelines public for the first time, before the election, Sir Gus O'Donnell has sought to ensure that everyone knows what the position will be in case no party wins an overall majority," they said.

They added that it would be Mr Brown's "duty to stay in office until it becomes clear which party or combination of parties can command the most support in the new Parliament." They cited the clear precedents of Sir Edward in 1974 and Stanley Baldwin in 1923, the Tory prime minister who lost his majority but soldiered on and quit after losing the Commons vote on the King's Speech.

The bottom line is: we must always have a government, and until a new one can be formed the present government carries on. So there is some method in the apparent British madness. And yet the rules could soon provoke a constitutional wrangle or even a crisis which embroils the Queen.