Cameron's premiership hopes in doubt as Brown vows to go

Until yesterday afternoon the messages from both the Conservatives and Liberal Democrats had been so positive it was widely assumed a deal – whether it was for a formal coalition or a more casual agreement to prop up a minority Conservative administration – was only a matter of time.

Last night, that idea was challenged, not least because formal talks are now under way and Gordon Brown's presence as Prime Minister – which Nick Clegg had made clear before the election would make a deal difficult – is no longer an issue.

That said, there are still plenty of stumbling blocks – especially the fact other Liberal Democrat MPs are uneasy about an alliance with a party just defeated at the ballot box while some Labour MPs are convinced a period in opposition would allow the party a breathing space while the other parties take the blame for unappealing decisions.

And the Tories will hope William Hague's offer last night of a referendum on introducing a new – alternative vote – voting system may yet convince doubters into concluding that a deal with David Cameron would be best after all.

For the time being however, the Liberal Democrats remain in talks with the Conservatives while negotiating with Labour as well.

As Lib Dem Environment Spokesman Tim Farron said yesterday "the arithmetic works both ways", meaning that their support for either side would be able to create the desired stable government.

Technically that is true, but doing a deal with the Tories is far simpler because it would achieve a straightforward majority, while Labour would still need the support of minority parties – such as the Welsh and Scottish nationalists and the one Green MP – to command a stronger Commons majority.

While the content of negotiations between the Tories and Liberal Democrats has been kept a closely guarded secret over the past three days, the feedback has been genuinely positive, suggesting a deal is possible.

After yesterday's meeting of MPs, Education Spokesman David Laws said the parliamentary party wanted "clarification" from the Tories over three key policy areas – education funding, fair taxes and voting reform.

His carefully-worded statement suggested the negotiating team is closer than their rank and file members to agreement with the Tories, from whom many MPs are ideologically marooned.

It may be that sufficient clarification could be found to get MPs to sign off a deal, and Mr Hague's offer of a referendum on voting reform may be a pivotal move.

However, the start of formal talks between Labour and the Lib Dems opens up the possibility of a different deal that would deprive Mr Cameron of the keys to Number 10 despite having polled two million votes and secured nearly 50 seats more than any other party.

It is likely Mr Brown's sacrifice – pledging to oversee the talks but be gone as leader by the autumn – was a necessary condition for any serious talks to take place after more casual conversations in recent days, not least given weekend reports that Mr Clegg had raised the idea of the Prime Minister resigning in a phone call between the two men.

Now, those talks can begin in earnest, with Transport Secretary Lord Adonis, a former Liberal Democrat, a key member of the negotiating team along with Lord Mandelson. Yesterday he talked of forming a Lib-Lab "partnership of principle".

While many of Mr Clegg's party faithful feel ideologically closer to Labour, Mr Brown's act of sacrifice may still fail to save Labour. Some Lib Dems will feel reluctant to prop up a Government they feel has failed over 13 years. Others will also question how strong and stable a government – the words repeatedly demanded by Mr Clegg and his negotiators in recent days – any Lib-Lab deal could be, given it would also be reliant on minority party support to get any measures through the Commons.

Some will also be reluctant to back another unelected Prime Minister – especially as they would agree to the deal without knowing who will replace Gordon Brown, presuming there is a leadership contest – and others will be reluctant to enter into a government of the election losers.

Last night Labour's negotiating team – which includes Ed Balls, Ed Miliband, Lord Mandelson and Harriet Harman – met the Lib Dems for the first time. After yesterday's drama it is anyone's guess what the next twist will be.