Clegg's Liberal Democrats Will Pursue Cameron Offer of Pact to Oust Brown

Negotiators for Conservative David Cameron and Liberal Democrat Nick Clegg completed their third session in search of a deal to form a new government as they faced pressure to reassure investors over political stability.

The 6 ½-hour meeting, aimed at bridging differences on issues that include overhauling the electoral system, were described as “positive and productive” by Conservative negotiator William Hague. Cutting a record budget deficit would be the core of any agreement, he told reporters in London.

“It is important to show progress by tomorrow when the markets open,” Michael Gove, the Conservatives’ education spokesman and a Cameron adviser, said today on the BBC’s Andrew Marr Show.

The pound and gilts fell May 7 on concern the jockeying would undermine efforts to cut a record budget deficit. Sterling fell 0.2 percent to $1.4804 after dropping as much as 2.4 percent and gaining 0.7 percent. Government bonds slid, pushing the 10-year gilt yield up by 3 basis points to 3.84 percent.

The negotiations to form an alliance to oust Prime Minister Gordon Brown were triggered by elections May 6 that failed to produce a majority, resulting in the first hung Parliament since 1974. Brown, who has also appealed to Clegg for an alliance, remains in office amid what he called “a political landscape not considered possible a few short weeks ago.”

Clegg-Brown

Clegg spoke to both Brown and Cameron today, meeting the prime minister in London and speaking by phone to the Conservative leader. Hague said his team would resume talks with the Liberal Democrats, whose negotiators include Vince Cable and Danny Alexander, “in the next 24 hours.” Cameron will brief Conservative lawmakers at 6 p.m. tomorrow.

Sixty-two percent of people questioned in a YouGov Plc poll for the Sunday Times newspaper said Brown should quit now. Twenty-eight percent disagreed, YouGov said. YouGov questioned 1,406 adults online May 7 and yesterday.

The Conservatives won 306 districts in the vote, a net gain of 97 from the previous election in 2005. Labour had a net loss of 91 seats to end with 258. The Liberal Democrats lost five seats and now have 57 members of the 650-seat House of Commons.

With Cameron winning the most seats and votes, “one has to assume that he and Nick Clegg can make it work,” Diane Abbott, a Labour member of Parliament from London since 1987, said today on Sky News.

Labour lawmakers Kate Hoey and John Mann became the first of the party’s elected officials to call on Brown to step down.

‘Not Tenable’

“It is not tenable for Nick Clegg to be propping up Gordon Brown,” Mann said. Brown “needs to be making plans to step down as Labour leader, and when the government is formed, he should then be stepping down as prime minister.”

Still, Liberal Democrat lawmaker Simon Hughes said a deal with the Labour Party should not be ruled out.

The talks with the Conservatives are “not the only show in town,” Hughes told Sky News. “Let’s see how today goes, how tomorrow goes. If we can agree we will, if we can’t we move on.”

Clegg, 43, said today the Liberal Democrats would emphasize “the big changes we want.” They include changes to the voting system to give smaller parties greater representation in Parliament, an end to income tax for 3.6 million low earners, a breakup of big banks and cutting school class sizes.

Electoral Overhaul

Cameron, who says he wants to stick with Britain’s first- past-the-post voting system, proposed setting up a panel to study an electoral overhaul. Brown offered Clegg an immediate referendum on the issue. The YouGov poll said 62 percent favored a “more proportional” voting system, against 13 percent who opposed it.

There’s a “mountain to climb” to narrow policy differences with Conservatives, former Liberal Democrat leader Paddy Ashdown said today on the Marr Show before he met Clegg.

Cameron faces pressure from his party, as well, where some lawmakers oppose making concessions.

“I would rather be in a minority government,” said Graham Brady, a Conservative member of Parliament, said. “It’s perfectly reasonable to say we should set out to achieve stability and longevity, but realistically, there’s not much more prospect of whatever arrangement is reached lasting for very long.”

A failure by either Brown or Cameron, 43, to come to terms with potential allies would probably result in Cameron seeking to establish a minority government.

Brown, 59, would need an unprecedented four-way alliance including Scottish and Welsh nationalists to stay in power. He thanked Labour campaign workers in an e-mail today.

‘Self-Evident’

Brown’s inability to lead such a coalition is “self- evident,” Ashdown said.

Brown remains as prime minister until he advises Queen Elizabeth II, as head of state, that he is resigning. As Britain has no written constitution, the 84-year-old monarch is guided by conventions built up over hundreds of years. The main requirement for the queen is to find a political leader who can command the confidence of the House of Commons.

“I am working on the assumption that we are going to have a minority government,” Simon Henig, a lecturer in politics at the University of Sunderland, said in a telephone interview. “There have been no formal deals in Britain apart from episodes during the wars.”

To contact the reporters on this story: Kitty Donaldson in London at kdonaldson1@bloomberg.net; Robert Hutton in London at rhutton1@bloomberg.net

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