There may be assumptions about what a hung parliament would look like but Stephen Maxwell shows that in fact it might not be that striaghtforward

While the most likely outcome of May’s General Election remains an overall Tory majority the odds on a hung Parliament are narrowing with each opinion poll. The head of the Civil Service Gus O’Donnell is duly dusting off guidance on the constitutional procedures for forming a Government where no party has an overall majority. But the procedural complexities pale beside the political complexities. The assumption behind current speculation about a hung Parliament is that while the Tories may not win an overall majority they will have the largest representation in the House of Commons ensuring that David Cameron will be the first party leader to be invited to form a Government. That’s where the problems start.

There are three ways in which a hung parliament can form a Government – a formal coalition with Cabinet Ministers drawn from the participating parties, an informal coalition where one party forms the Government with a promise of support from one or more other parties, or a minority government as in the current Scottish Parliament where one party forms the Government with the aim of attracting support from the other parties issue by issue. The parties will apply the same underlying calculus of of party advantage to each of the options. One general rule applies – the harsher the policies required of Government the less potential allies will be attracted towards formal coalition or agreements. Don’t be surprised if Westminster follows Holyrood in a period of minority Government.

On their current policies on the key economic issue facing the new Parliament the Tories are likely to be a minority in the Commons. On the timing and the scale of public spending cuts Labour, the Liberal Democrats, the SNP, Plaid Cymru, and even the Ulster Unionists are all likely to be closer to one another than any of them will be to the Tories. It is difficult to imagine the Liberal Democrats joining in a formal coalition with the Tories if the expectation is that George Osborne’s promised autumn budget would include spending cuts in the short term significantly larger than the cautious cuts expected in Darling’s pre-election budget.

The Tories have emphatically lost the intellectual battle on the short term management of the economy. The Liberal Democrats and the Nationalists share Labour’s Keynesian belief in the need for public deficits to compensate for the rise in private savings and the decrease in manufacturing investment that come with recession. The majority of academic economists and authoritative think tank and media commentators are in the same camp. The Ulster Unionists meanwhile will be mindful of Northern Ireland’s particularly high dependence on public subsidy.

Two developments could rescue the Tories from their isolation. If the bond markets decided that the EU had written off Greece then a national crisis could quickly escalate into an international crisis of confidence engulfing the other ‘Pigs’ (Portugal, Ireland and Spain) and threateningthe Euro and the pound. The Tories’ preference for an accelerated programme of large cuts would then gain credibility inside and outside Parliament. But this is an improbable scenario. Given the fragile state of the European recovery, Germany and the other leading European economies cannot afford to let Greece founder.

The Tories’ problem is that there is no likely replacement for the Liberals. Neither SNP nor the Plaid could afford to be in a coalition with a Tory Government. It is possible to imagine a Tory-SNP agreement under which the Tories exempted Scotland from the worst of the spending cuts but it would be hugely problematic for both parties

The other development that could increase the Tories’ chance of forming the Government in a hung Parliament lies in their own hands. George Osborne has already travelled some distance from the Tories’ initial call for immediate and swingeing cuts in response to the financial crisis and for the 2010/11 fiscal year is now looking for a relatively meagre £1.5bn. Following his Mais lecture at the end of February in which he committed to an autumn spending review focused on the longer term structural deficit – that is the excess of public spending over revenue in the latter years of the Labour administration preceding the additional deficit from the Government’s emergency response to the banking crisis – it is even more difficult to quantify how far his approach would differ from that of a Labour Government committed to halving the overall deficit in the lifetime of the next Parliament. If there are signs of more vigorous growth in the economy in the next few months then a further dose of Osborne pragmatism might be able to close enough of the gap with the Liberal Democrats to make an agreement possible on the future for spending.

The Conservatives do not have much else to offer the Liberal Democrats. They are currently the least enthusiastic of all the parties on electoral reform though if the margin by which they

are denied an outright majority is judged to be down to the inbuilt bias of the electoral system against the Tories they might become more willing at least to talk about reform. Their interest in replacing the Human Rights Act with a native English version puts the frighteners on Liberal activists as much as does their policy on the European Union. They share Labour’s reluctance to think radically on the Trident replacement even if the unions believe that they are less committed to the £5bn order for the two super aircraft carriers. But then the Lib Dems’ appetite for reform on national security is itself an unknown quantity: their thinking on Trident seems not to go much further than putting nuclear warheads on Cruise missiles.

One area offering scope for some policy convergence would be on the banks where out of office the Tories seem to have more interest in structural and tax reforms than the Labour Government. Social policy might also offer some deal-making options if only because of the vagueness of much of Tory thinking. Their headline interest in mutuals, an extended role for voluntary organisations in service delivery, greater individual and community empowerment, and their plans for parent-managed schools, will resonate with many Liberals. On the other hand their commitments to a £1m threshold for inheritance tax and to big cuts in the eligibility of children’s trust funds would presumably be a major sticking point.

The Tories’ problem is that there is no likely replacement for the Liberals. Neither SNP nor the Plaid could afford to be in a coalition with a Tory Government. Alex Salmond’s boast that SNP would have a hung Parliament dancing “to a Scottish jig” may be difficult to deliver in practice. It is possible to imagine a Tory-SNP agreement under which the Tories exempted Scotland from the worst of the spending cuts but it would be hugely problematic for both parties. Although its recent record at both Westminster and Holyrood makes SNP less vulnerable to the “Tartan Tories” smear than it was in the 1970s any arrangement that seemed to prop up a Tory Government intent on deep cuts in public spending overall, even if Scotland was partially exempted, would carry a heavy penalty in a country where the centre of political gravity is firmly social democratic and in which support for the Tories is half what it was in the 1970s. In addition to opposition from within their own party, the Tories know their opponents would never let English voters forget it if a Tory Government cut services in England while protecting the already privileged levels of Scottish spending.

The SNP commitment to holding a referendum on Scotland’s independence within the lifetime of the Scottish Parliament suggests a further possibility. Could a deal be done with the Tories’ UK leadership for the Tories in the Scottish Parliament to support an independence referendum in return for an assurance that SNP’s Westminster MPs would not use their votes to block a Tory coalition or minority Government?. The Tories might judge that the minority support for independence in the opinion polls was sufficient security against a victory for independence. But there would be little in it for them if they were not able to secure a continuing majority in government, and that SNP could not afford to provide.

If a Tory-led coalition seems implausible what chance of a Labour led coalition? In policy terms this seems considerably more plausible. On public spending the two parties are close. Where the Liberal Democrats are noticeably more radical than Labour – tax and banking reform for example – their policies would appeal to many Labour MPs and supporters. Vince Cable as Chancellor in a Labour-led coalition Government might be tolerable to Labour MPs if only because of its probable popularity with the public. On social policy, the environment and industrial policy the Liberal Democrats come and go over much the same territory as the Labour Party. The Liberals’ pro-Europeanism would certainly grate with some of the more committed Atlanticists among Labour Ministers and MPs but short of financial Armageddon the issue of Euro membership will be off the agenda of the next Parliament. There would be tensions too on issues of civil rights but again a significant section of the Labour community would welcome the Liberals’ progressive influence as a counterweight to their own compromised hardliners such as Straw, Miliband and Johnson.

Two issues would remain – the Prime Minister and voting reform. The Lib Dems would never agree to serve under Gordon Brown. However, as many in the Labour Party would be happy to use Labour’s electoral defeat, by whatever margin, as an opportunity finally to dispose of Gordon Brown, that should prove no obstacle. Voting reform might be more difficult for both parties. Having failed to get any progress on proportional voting from their alliance with the minority Labour in 1977-8 the Lib Dems will insist on something more second time around. Under Brown the Labour Government has proposed a referendum on the Alternative Vote which the Lib Dems supported as a small step forward. Under a new leader – David Miliband, Ed Balls, Alistair Darling? – under strong pressure to prevent the Tories returning to power the Labour Party might be persuaded to extend the referendum to include an option for the Lib Dems’ preferred STV.

As with the Tories SNP could seek a spending deal with Labour or a deal on a constitutional referendum or a combination of the two. Like the Tories Labour would find it politically difficult to give Scotland even more favourable treatment in mainstream spending budgets than she already enjoys though it might be persuaded to relax Treasury rules to allow the release of the Fossil Fuel Levy or the savings to the UK budget from devolved reforms such as free social care. Given the spending pressures a Labour Government might prefer a deal on the constitution. The simplest deal would be a multi-option referendum, offering Labour’s minimalist Calman option, ‘devolution max’ and independence. There would be a cost to Labour in the risk that independence/devolution max between them might win a clear majority pushing devolution further than Labour would wish. Judging that SNP could not politically afford an alliance with the Tories they might offer no more than a vote on Calman versus independence counting on recession fears to keep the voters in line.