David Cameron says it is “decision time” for the Lib Dems over which party they will back to govern the UK.
The Tories won the most seats but were short of a majority and have asked for Lib Dem support to form a government.
But on Monday, the Lib Dems opened formal talks with Labour, after Gordon Brown said he would quit as leader.
Lib Dem leader Nick Clegg said talks had reached a “critical and final phase” and his party would “do our bit to create a stable, good government”.
The Lib Dem negotiating team is now in talks with Labour in the House of Commons while a Conservative source said that channels of communication remained open but they had no plans for further talks on Tuesday with the Lib Dems.
Voting system
CNews political editor Muhammad Farhan said while many senior Lib Dems had close links to Labour, Mr Clegg would have to weigh up whether a deal with that party – which would still not have enough seats to command an overall majority – could deliver strong and stable government.
He said it would also depend on the extent of opposition to any deal within the Labour Party – with former cabinet ministers David Blunkett and John Reid already warning it could be very damaging for the party.
Both Labour and the Tories are trying to woo the Lib Dems with promises on electoral reform.
Labour say if the Lib Dems back them they will put the Alternative Vote system into law and then hold a referendum asking voters if they want a proportional representation voting system – a key issue for the Lib Dems.
But Mr Blunkett told the CNews any deal with Labour would be “a coalition of the defeated” and said the developments showed why full proportional representation was a bad idea.
“I think we can wear AV… What we can’t have is this shambles every time we have an election. ”
‘Reasonable offer’
Under AV, voters rank candidates in a constituency. If no-one gets 50% of votes the candidate finishing last gets eliminated and their second preferences are awarded to the remaining candidates. This continues until one candidates passes the 50% mark.
The Conservatives upped their offer to the Lib Dems to a promise of a referendum on changing the voting system from existing first past the post system to AV.
Speaking on Tuesday morning Mr Cameron said his party had made a “very reasonable” offer to the Lib Dems and had put aside party interest in favour of the national interest – the Conservatives oppose changing the voting system.
Mr Cameron said: “It’s now, I believe, decision time, decision time for the Liberal Democrats and I hope they will make the right decision to give this country the strong, stable government that it badly needs and badly needs quickly.”
But former Conservative cabinet minister Sir Malcolm Rifkind told the CNews he was “saddened, depressed and very angry” about what had happened. He said he had believed Mr Clegg was “acting in a very honourable way” before learning his team had been secretly meeting Labour.
Leaving his home on Tuesday morning, cabinet minister Ed Balls – one of the people widely expected to run for the Labour leadership – told reporters: “It’s an important day. But we will take the time we need to take to make sure we get this right.”
He said there were “areas of agreement” but also “some difficult issues” between the Labour and Lib Dem negotiation teams.
The CNews understands Labour strategists have drawn up a five-point plan to sell any deal to sceptics within their own party – including the argument that it would have legitimacy as between them the parties had 52% of the vote.
Meanwhile David Miliband refused to be drawn on the progress of talks between the Lib Dems and Labour – but appeared to confirm he would stand to succeed Mr Brown as Labour leader, saying: “I’m certainly not going to be saying anything more – and none of the candidates are going to be saying anything more.”
Influential Labour backbencher Jon Cruddas put out a statement calling for the entire party and the trade unions to be consulted about any deal between Labour and the Lib Dems.
CNews Reporter chief political correspondent John Martin said it suggested he was considering himself as a candidate for the Labour leadership.
‘Rainbow coalition’
Labour’s ruling national executive committee is set to meet on Tuesday to discuss the prospect of a coalition and the time it will take to replace Mr Brown.
Senior Lib Dem and Labour figures have appeared to rule out a “rainbow coalition” involving the SNP and have said instead they could rule as a minority government, confident that the Scottish nationalists would not vote with the Conservatives.
Labour’s election co-ordinator Douglas Alexander told CNews Scotland he “cannot envisage” the SNP being involved in any coalition agreement because there were “fundamental differences” between them.
The Tories secured 306 of the 649 constituencies contested on 6 May. It leaves the party short of the 326 MPs needed for an outright majority, with the Thirsk and Malton seat – where the election was postponed after the death of a candidate – still to vote.
Labour finished with 258 MPs, down 91, the Lib Dems 57, down five, and other parties 28.
If Labour and the Lib Dems joined forces, they would still not have an overall majority.
With the support of the Northern Irish SDLP, one Alliance MP, and nationalists from Scotland and Wales they would reach 328, rising to 338 if the DUP, the independent unionist and the new Green MP joined them.
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