The prospect of a government led by David Cameron has strengthened after the Tory leader and Nick Clegg agreed to “explore further” plans for economic and political reform.
By Andrew Hough
Mr Cameron held talks with the Liberal Democrat leader after announcing he wanted to put a “big, open and comprehensive offer” to the party, which could see it provide ministers in a coalition Cabinet.
On a day Britain was plunged into uncertainty over its future government, Liberal Democrat sources said the two men had agreed they should “explore further” plans for economic and political reform.
Later William Hague, the Shadow Home Secretary, said on that Liberal Democrats could be offered ministerial posts in a possible future coalition after Britain’s inconclusive election.
Mr Cameron said he wanted to forge a “big, open and comprehensive” power-sharing deal with the Liberal Democrats in his attempt to form a government.
While keeping open the option of minority Conservative rule, Mr Cameron suggested he would prefer a pact with Mr Clegg’s third-placed party.
Mr Clegg has already indicated that the Conservatives have won the right to run the country, but is likely to seek significant concessions in return for his support.
But Gordon Brown, who remains Prime Minister until the resolution of the impasse caused by Thursday’s inconclusive General Election, made clear that he was ready to deliver immediate legislation for a referendum on the Lib Dems’ cherished goal of electoral reform if Mr Clegg signs up to a deal to keep him in Downing Street.
The dramatic day of offer and counter-offer was set in train by an election which produced the UK’s first hung Parliament leaving in a generation.
The Conservatives won the most seats in parliament but fell short of an overall majority.
The pound and the London stock market bore the brunt of a major sell-off as the UK faced the political uncertainty for the first time since 1974.
The White House tried to quell market fears over a hung parliament, saying it did not think the post election period would affect the economy or the US-UK “special relationship”.
“I don’t think that this period will affect the economy or the special relationship that we have and we look forward to working with whoever is the new Prime Minister,” Robert Gibbs, President Barack Obama’s spokesman, told reporters.
Earlier Mr Cameron told reporters: “I want to make a big, open and comprehensive offer to the Liberal Democrats.”
“I want us to work together in tackling our country’s big and urgent problems,” he added, after Thursday’s election resulted in a hung parliament.
Mr Brown had earlier made clear that if talks broke down he would be willing to talk to the Lib Dems in an attempt to form a coalition.
The Prime Minister, in a short statement to the world’s media outside Downing Street, tried to stress common ground with the Liberal Democrats, saying there should be “immediate legislation” on electoral reform.
Mr Brown said it was right for talks to take place on “areas where there may be some measure of agreement between our two parties”.
The Prime Minister has already taken the first step towards forming a new government.
The Labour leader asked the Cabinet Secretary Sir Gus O’Donnell to arrange for the Civil Service to provide support to parties engaged in coalition discussions.
The PM made clear he does not expect a swift conclusion to the uncertainty surrounding the result of the election, stating that negotiations between the parties could be “prolonged”.
“Clearly should the discussions between Mr. Cameron and Mr Clegg come to nothing then I would of course be prepared to discuss with Mr. Clegg the areas where there might be some measure of agreement between our two parties,” he told reporters outside No 10.
Mr Brown said he was addressing the country as Prime Minister in a “position unknown to this generation of political leaders”.
He said he now had a constitutional duty to seek to resolve the situation for the good of the country.
“What all of us need to be mindful of is the imperative for a strong and stable government and for that to be formed with the authority to tackle the challenges ahead and one which can command support in Parliament,” he said.
“It is with this in mind that all of us should be facing the times ahead.
“I understand – as I know my fellow party leaders do – that people don’t like the uncertainty or want it to be prolonged.”
He added: “We live, however, in a parliamentary democracy. The outcome has been delivered by the electorate. It is our responsibility now to make it work for the national good.”
Mr Cameron had earlier called on Mr Brown to stand aside after the Tories made significant gains across England and Wales in the closest general election for a generation.
The Conservative leader claimed that Labour had “lost its mandate to govern” following the biggest swing to the Tories since the 1930s.
Earlier Mr Clegg spoke to reporters where he said: “I have said that whichever party gets the most votes and the most seats 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,” said the Lib Dem leader.
“I think it is now for the Conservative Party to prove that it is capable of seeking to govern in the national interest.”
It could be days before the final make-up of government is decided.
Mr Cameron was expected to make a formal statement later on Friday afternoon.
He had previously said he was “happy to talk” with other parties, including the Liberal Democrat leader, according to Michael Gove the shadow education secretary.
Mr Gove said: “It is certainly the case that David Cameron is happy to talk to people in other parties in order to ensure that we can have a strong, stable, Conservative-led government to provide the country with the change it needs.”
He added: “I stress it is for David Cameron to decide with whom we should work. We do not yet know the basis on which the new Parliament will be constructed entirely, we don’t know the precise arithmetic.”
Meanwhile senior Labour ministers have begun making overtures to Gordon Brown themselves.
Asked if Labour would do a deal to stay in power, Lord Mandelson said: “The constitutional conventions are very clear. The rules are that if it’s a hung parliament, it’s not the party with the largest number of seats that has first go – it’s the sitting government.”
Pressed again on whether he would do a deal with the Lib Dems to hold on to power, he said: “I have no problem in principle in trying to supply this country with a strong and stable government.”
Mr Cameron has indicated that he would act in the “national interest” which could see him work with his rivals to form a coalition government.
On an unpredictable night, key seats won by the Conservatives from Labour included Basildon, Blackpool North, Tamworth, Dover, Derbyshire North and Aberconwy. However, they failed to secure several key seats.
Perhaps most surprisingly, the expected Liberal Democrat surge failed to materialise in many areas.
The final result of the election is only expected to be confirmed this afternoon because more than 20 constituencies did not conduct overnight counts. The Queen is not planning to receive any of the party leaders hoping to form the government.
The poll led to a row between the main parties over who had the right to form the next government in a hung Parliament.
The constitutional precedent is that the current prime minister has the right to attempt to form the next government if no party secures an overall majority.
Labour was poised to offer the Liberal Democrats a deal that would bring Mr Clegg’s party into a coalition government.
The Liberal Democrats appeared to be on course for a disappointing election with the opinion poll surge enjoyed by Mr Clegg not being translated into votes.
Lembit Öpik, one of the party’s most high-profile MPs, lost his seat and the party’s share of the vote dropped in many areas.
Much of the voting appeared to be highly localised and left polling experts struggling to explain the national picture.
Several Labour ministers including Bill Rammell in Harlow, Phil Hope in Corby and Angela Smith in Basildon lost their seats.
More high-profile Labour figures such as Sadiq Khan, the Transport Minister, in Tooting and Ben Bradshaw in Exeter survived.
Civil servants were finalising plans to assist the negotiations which will become necessary in the event of a hung Parliament.
There were also growing concerns over the number of people who were unable to vote because of queues at polling stations.
There were reports of people being turned away from as officials struggled to cope. This could lead to parties legally challenging the result.
Voter turnout was forecast to have been more than 70 per cent.
Senior Labour ministers were preparing to start leadership bids to oust Mr Brown if he has performed as poorly as had been widely predicted.
Up to 350 new MPs are expected to enter Parliament, after dozens of politicians retired after the expenses scandal exposed by The Daily Telegraph last year.