Talks as to the composition of a new government in Britain took a dramatic turn Monday evening, with the announcement by Prime Minister Gordon Brown that he would stand down as Labour leader.

His announcement was made to clear the way for Labour opening formal discussions with the Liberal Democrats on a coalition government. The possibility sparked a virtual bidding war by the Conservatives in a further attempt to woo Liberal Democrat support, and furious exchanges from all sides. 

The days following the inconclusive May 6 poll have seen a series of talks between the Conservatives and the Liberal Democrats with a view to their forming an administration. The Conservatives won 306 out of the 649 constituencies contested—short of the 326 needed for an outright majority, while the Liberal Democrats came third on 57.

Labour holds 258 seats. This means a Labour-Liberal Democrat coalition would still not hold a majority and would be dependent on the support of the Scottish Nationalist Party, Plaid Cymru, and Northern Ireland’s Social Democratic Labour Party and the Alliance. This would take it to 328 seats, rising to 338 if the Democratic Unionist Party, the independent unionist and the single Green MP joined them.

Earlier, Conservative leader David Cameron and Liberal Democrat leader Nick Clegg had said that their discussions were “promising” and there was even an expectation that a deal could be announced on Monday evening.

Clegg had insisted that the Tories, having won the greater poll share, should have first right to form an administration. Against the backdrop of financial turmoil and a key meeting on a European Union bailout plan for Greece to stop the further melt-down of the eurozone, all the official parties agreed that the priority was a “stable” administration that could assure the financial markets it was determined to tackle Britain’s fiscal deficit.

It was on this basis that Cameron appeared to have ruled out the option of a minority Conservative government and had begun talks with Clegg.

But on Monday afternoon, after talks between Clegg and his MPs it was announced that the Liberal Democrats were to seek “further clarification” from the Conservatives about “key areas of policy”.

The major sticking point was on the introduction of proportional representation, upon which the Liberal Democrats had campaigned. Cameron had ruled out the introduction of PR, promising only an inquiry into electoral reform.

This placed Clegg under great pressure in selling any agreement to his own party, whose membership has traditionally considered itself closer to Labour in any case.

Earlier in the day, former Liberal Democrat leader Shirley Williams had cautioned Clegg against a formal coalition deal with the Tories. Williams said electoral reform was not in the Conservatives “DNA” and that it would be preferable for the Liberal Democrats to agree a “confidence and supply” commitment, i.e., that they agree to support a Conservative budget and an agreed Queen’s speech.

Others had warned that a coalition with the Conservatives would split the Liberal Democrats, and lose it much of its base in Scotland and the major urban conurbations of England and Wales.

On Monday afternoon, it was announced that the Liberal Democrats had asked for formal talks to begin with Labour. In a statement, Clegg said that talks with the Conservatives had failed so far to reach “comprehensive” agreement, and that it was therefore necessary to explore other options.

Brown’s resignation as Labour leader was a pre-condition for such discussions, as Liberal Democrats had argued it would be fatal to be seen to prop up a prime minister who had not been elected and with Labour’s vote falling to its lowest share since 1983.

In his statement, Brown said that “with no party able to command a parliamentary majority arising from the general election, my constitutional duty as prime minister is to ensure government continues while parties explore options for forming a new administration with majority support in the House of Commons.”

He continued, “If it becomes clear that the national interest, which is stable and principled government, can be best served by forming a coalition between the Labour Party and the Liberal Democrats, then I believe I should discharge that duty to form that government”.

On this basis, he said, he had decided to announce his resignation and “set in train” a Labour leadership contest he hoped would be completed by September.

Clegg responded by stating that Brown had made “a difficult personal decision in the national interest” and that his “decision is an important element which could help ensure a smooth transition to the stable government that everyone deserves.”

It subsequently emerged that the Liberal Democrat negotiating team had been involved in discussions with leading Labour figures for several days, unbeknownst to the Conservatives. Simultaneously, discussions over Brown’s resignation had been taking place involving leading architects of the New Labour project, including Peter Mandelson, Lord Adonis and Tony Blair’s top advisor Alistair Campbell.

Even so, Brown’s announcement was met with anger from several senior Labour figures. They denounced any moves towards a Labour-Liberal Democrat coalition as “unsustainable”, believing that staying in office on this basis would prove a poisoned chalice.

Former Home Secretary John Reid said Brown’s talk of forming a “progressive coalition” would be “pretty disastrous”. The Conservatives had come out of the election in a “far better fashion” than Labour, and the party with the most votes should be allowed to form a government, he said.

On live television, Adam Boulton, commentator for Murdoch’s Sky News, became hysterical as he confronted Alistair Campbell, demanding to know why Labour did not “just go quietly” and accept it had lost the election.

Brown has in fact abided by constitutional norms in continuing as “caretaker” in the absence of an alternative government. One of the greatest fears in ruling circles is that the electoral impasse could spark a constitutional crisis that would drag the monarch into a political row. But the Murdoch press has conducted a campaign over the last days decrying Brown for “squatting” in Downing Street.

His announcement prompted a declaration by the Tories that they would “go the extra mile” and offer the Liberal Democrats the prospect of a referendum on an Alternative Voting system. This falls short of what Labour is reported to have offered—a bill introducing the Alternative Voting system immediately, followed by a referendum on full proportional representation.

Speaking for the Tories, William Hague said the choice the Liberal Democrats faced was to join Labour in an unstable government, with an unelected leader that “would be unacceptable to the people of this country”, or “make a coalition with the Conservative party… in a government that would have a stable and secure parliamentary majority; a majority of 76 in the House of Commons, something highly desirable in our current economic situation.”

Meetings continued late into Monday night, with Liberal Democrat sources stating that today was “crunch time”.