Conservatives edge closer to coalition deal with Lib Dems

After a marathon talks session lasting more than six and a half hours, the two parties' negotiating teams left the Cabinet Office saying they would meet again within the next 24 hours.

Following their discussions, Mr Cameron and Nick Clegg then held their second face-to-face meeting in 24 hours, seeing each other this time in the Commons.

But on another day of drama and intrigue at Westminster, it appeared Gordon Brown had still not given up his faint hopes of hanging on to power, slipping out of No 10 for a secret meeting with Mr Clegg.

The main focus, however, was on the meeting between the Conservative and Lib Dem negotiators. As they left to brief their respective leaders, neither side was giving much away about the discussions.

In comments apparently designed to reassure the financial markets, Mr Clegg's chief of staff Danny Alexander stressed that the centrepiece of any deal would be a plan to tackle Britain's record 163bn deficit.

"Any agreement made will have deficit reduction and a credible plan for controlling economic stability at its heart," he said.

For the Tories, Shadow Foreign Secretary William Hague said the discussions had been "very positive and productive" covering a wide range of policy issues.

Neither team would say whether they were looking at a full-scale coalition, with Lib Dem Ministers sitting around the Cabinet table, or a more limited deal – possibly one which would allow Mr Cameron to govern as the head of a minority administration.

Mr Hague confirmed that they had also discussed "political reform", but did not go into whether it included the crucial issue of reform of the voting system – a central concern for the Lib Dems.

Earlier, senior Lib Dems were making clear that Mr Cameron's offer of a committee of inquiry to look into the issue was simply not an adequate basis for progress.

Former Lib Dem leader Lord Ashdown, who had been advising Mr Clegg, said dismissively that he assumed that it was just "an opening bargaining position".

"I don't believe that anybody can now establish a new government who is deaf to the calls from the British people for reform to our political system and part of that is electoral reform," he said.

Energy spokesman Simon Hughes went further, questioning whether the Tories could actually deliver on electoral reform and warning that there could still be "irreconcilable differences" between the parties.

"The (Conservative) Party would have to move significantly if they were to deliver this because they have sounded superficially accommodating but fundamentally pretty unreconstructed," he said.

Mr Cameron, who addresses his MPs today, also faces concerns within his own ranks, with many Tory MPs adamantly opposed to any suggestion of a deal involving electoral reform.

Senior backbencher Graham Brady, who is tipped to be the new chairman of the powerful backbench 1922 Committee, warned that there was little enthusiasm among Tory MPs for a full-blown coalition deal.

Meanwhile, both Labour and Lib Dem sources were playing down Mr Brown's meeting with Mr Clegg, describing it as

"amicable" but saying that it was simply to update on the situation.