Gordon Brown announced tonight that he is to step down as Labour leader but wants to remain in No 10 for a few more months as part of a coalition deal with the Liberal Democrats.
Playing Labour’s final card after an extraordinary weekend of post-election wrangling, the Prime Minister announced that the Liberal Democrat leader Nick Clegg had formally asked for negotiations to begin on a power-sharing deal with Labour.
Mr Brown said that he had agreed to the request, but thought that he did not think he should lead a coalition government for longer than strictly necessary and a new Labour leader would be in place by the end of September.
The announcement – Labour’s nuclear option – came barely an hour after a meeting of Lib Dem MPs which stalled on a Tory power-sharing offer and asked for more details on the key issue of electoral reform.
Sterling fell 1 per cent against the US dollar within minutes of the announcement as investors worried it could take even longer for the next government to start addressing the budget deficit.
Speaking outside No 10, Mr Brown said: “Mr Clegg has just informed me that while he intends to continue his dialogue with the Conservatives, he now intends to open formal negotiations with the Labour Party.
“I believe it is sensible and it’s in the national interest to respond positively. The Cabinet will meet soon. A formal policy negotiating process is being established under the arrangements made by the Cabinet Secretary similar to the negotiations between other parties.”
Under the timetable laid out by Mr Brown, he will immediately set in train arrangements for a Labour leadership election – in which he will not take part nor back any candidate.
That election will be concluded by the Labour Party autumn conference in Manchester, meaning that Britain could again have an unelected Labour Prime Minister.
The bombshell announcement came after three days of high-level negotiations between the Tories and Lib Dems produced an outline deal that Mr Clegg presented to his MPs this afternoon.
The Tory leader David Cameron briefed his Shadow Cabinet on the details of the emerging deal while the Lib Dems were meeting. “I think we’ve made them a handsome offer but it’s really up to Clegg to see if he can deliver his party,” one senior Tory told The Times.
The Tory meeting was over in just 45 minutes but the Lib Dem MPs’ meeting lasted more than two hours, after which the party’s education spokesman, David Laws, briefed reporters – but without giving much away.
He said that the Lib Dems had asked for further clarifcation from the Tories on issues including tax and education reform and reform of the voting system. But he said that the party had agreed that Mr Clegg should continue to listen to representations from Gordon Brown while clarification was sought about the offer from the Tories.
That last line reflected concern on the Lib Dem benches that Mr Clegg had been wrong to turn quite so firmly to the Tories after last Thursday’s election, when the Conservatives won the most votes but ended up 20 seats short of a majority.
Mr Brown has held two meetings with Mr Clegg in the past two days but it is unclear how a Lib Dem-Labour deal could be done, given that the two parties do not have a Commons majority even when they join forces. They would need the support of nationalists and other minor parties.
At the very least, the Labour move will throw the cat among the pigeons and increase splits in the Lib Dem ranks – but Mr Brown said that it could lead to a strong and stable government that would enact political and electoral reform and act to rein in the deficit.
“There is a progressive majority in Britain and I believe it could be in the interests of the whole country to form a progressive coalition government,” he said.
“In addition to the economic priorities, in my view, only such a progressive government could meet the demand for political and electoral change which the British people made last Thursday.
“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, support that government which would, in my view, command a majority in the House of Commons in the Queen’s Speech and any other confidence votes.
“But I have no desire to stay in my position longer than is needed to ensure the path to economic growth is assured and the process of political reform we have agreed moves forward quickly.”