Leading article: A hung parliament would not be a disaster for Britain

Such an outcome at the next election could even have potential benefits

The latest opinion polls suggest that a hung parliament is a real possibility after the next election. They also suggest that the public rather likes the idea. According to a recent survey, almost half of voters would like the next government to be required to work with one of the smaller parties to achieve its legislative agenda.

This is an indictment of Labour and the Conservatives. The public evidently does not relish the prospect of outright control for either of the two largest parties, even those who are prepared to vote for them. The finding is also an indictment of our first-past-the-post electoral system. A hung parliament is an outcome that electors cannot directly vote for, despite the fact that it is what many would prefer.

There is a powerful and ingrained prejudice among our political, financial and media elite against hung parliaments; an assumption that a lack of a single party with a commanding majority would be bad for the country. Yet it is by no means clear that such an outcome would be a disaster. It is often said that the financial markets will panic if no single party is returned with an overall majority, pushing up interest rates. The scare story is that the lack of a clear winner would result in political stasis and fiscal incontinence. This is a narrative the Conservatives have been energetically talking up in recent weeks in the hope that voters will be scared back into their camp.

Yet the idea that a hung parliament would lead to economic meltdown is a misleading piece of conventional wisdom and a confirmation of the fact that the financial markets' understanding of Westminster is often rather unsophisticated. One foreign bank suggested recently that a coalition administration involving Ken Clarke, Lord Mandelson and Nick Clegg could be formed to take Britain into the eurozone. This is purest fantasy.

The markets are just as misled if they believe a hung parliament will mean political deadlock on the deficit. The Liberal Democrats have the most detailed proposals for reducing government spending of all the three main parties. The idea that Mr Clegg would wreck any attempts to tackle the deficit as the price of his party's support for a minority government is sheer nonsense.

And even if one believed that investors have a good grasp of the mechanics of British politics and are justified in arguing that fiscal stasis would result from a hung parliament, are financial markets not supposed to be forward looking? Would they not have already "priced in" their fears of what could follow such an election result, both in the interest rate charged on government bonds and the sterling price?

The potential benefits of a hung parliament have scarcely been mentioned in public debate. Yet these are real. A fiscal consolidation budget approved by more than one of the main parties could, paradoxically, enjoy greater public consent. A more consensual political process could result in better governance in a host of areas. One-party rule has hardly been an unalloyed blessing for Britain these past three decades.

There is no shortage of reasons to be concerned about Britain's economic future, from the sustained weakness of our economy, to the health of the banks, to, yes, the inevitable pain that will arise from reducing the deficit. But the prospect of a hung parliament should not be one of them.