I spent most of yesterday trying to come to terms with the fact that my political party, for the time being, had been kicked well into the long grass, and at the same time that David Cameron would become Prime Minister in the next few days. Mild relief was the fact that the Conservatives didn’t get an outright majority, which would have meant a Tory government starting yesterday would have had a much lower threshold of ‘democratic resistance’ to its policies over the coming term of parliament. The lower threshold of opposition would have made it easier for David Cameron to make deep spending cuts in a more ruthless way. So at the very least, one comfort to take out of this election is that there’s no majority Conservative government this morning.

Nick Clegg made it clear yesterday that he would give the Conservatives the first shot at forming a governing coalition with him. Neither Labour or the Tories won the required majority of seats, or 326 to be exact, on Thursday to form a government on their own (Conservatives have 306, Labour are on 258) so the 57 Liberal Democrat seats when added to the seats of the Tories create an overall majority which allows David Cameron to be Prime Minister. A Liberal/Labour coalition would only have 315 seats, so other small parties would have to be drafted in to make that work. In return for Clegg’s overtures yesterday, Cameron practically love-bombed the Liberal Democrats and made a “big, comprehensive offer” to help Clegg implement some of the policies in his election manifesto.

So for the coming hours at least, it seems that Clegg & Cameron will come up with a deal allowing the Tories to run the country for the first time since 1997. Let’s not jump the gun though. There are at least two major sticking points which really do have the potential to pour cold water over this Con-Lib romance.

1) The Liberal Democrats really are a democratic party, internally speaking. There’s a so-called “triple lock” that Nick Clegg would need to release in order to sign a deal with the Tories. Firstly, he needs approval from the Liberal Democrat members of parliament. Secondly, he would need the approval of the Lib Dem federal executive, the body of representatives that forms the administrative core of the party. Third and finally, and perhaps most crucially, the whole membership body of the Liberal Democrats would need to be balloted in a postal vote.

- Whilst I could see a situation where Nick Clegg and his front bench could persuade the executive committee and the Lib Dem MPs of the merits of making a deal which would a) blunt the Tories’ power in government to make brutal cuts and b) see some of the Lib Dems’ agenda actually be implemented, I suspect most of the Liberal Democrat members would not want to be seen dead in a coalition with the party that’s furthest away in terms of ideology.

2) The single most important policy for the Liberal Democrats to seek implementation of is electoral reform. If Britain changes its electoral system from the current first-past-the-post to proportional representation (PR), the Liberal Democrats would have more seats and more of a shot of forming a government. Let me demonstrate. The current system awarded the Liberal Democrats 57 seats for getting 23% of the vote share. Labour got 258 seats from 29% of the vote share. Under PR the Lib Dems would have got somewhere around 150 seats from this election. So you can see why they want electoral reform! I agree though, I think our current system is archaic and undemocratic, and actually turns people off politics.

- The reason this is important is because it is highly unlikely the Tories would agree to implement or try to implement an electoral system which would result in their parliamentary suicide. Proportional representation would make it difficult in the short-medium term for the Tories to be the party of government. The Conservatives are ideologically opposed to proportional representation and they believe that first-past-the-post, with some tinkering, is best for British democracy. Cameron himself said yesterday that the only ground they would concede on electoral reform would be to set up a commission to look into the matter – a ‘talking shop’ in effect.

These two sticking points are critical to keep in mind over the next few days. Whilst the media might have already made Prime Minister Cameron under a Tory/Liberal coalition a foregone conclusion, I wouldn’t hold my breath on this outcome. Gordon Brown has already offered a referendum on electoral reform should the Lib Dems go into a coalition with Labour. Unfortunately, for Labour to stay in power even with the Lib Dems’ seats, it would require support from the Scottish National Party (SNP) and the Northern Irish Social Democratic & Labour Party (SDLP). A four-party coalition would in my opinion be more likely to lead to instability in government and the markets. Despite this fact, I now don’t see this as an impossibility.

When Nick Clegg realises that he won’t get the electoral reform his party prizes, and perhaps when the members of his party show him that they despise the idea of a pact with the Tories, he will consider forming some kind of deal with incumbent Labour. Without doubt, that would have its difficulties also – Clegg won’t want to be seen to prop up a government that lost an election, and a leader who is unpopular. But it’s the most natural political fit for the Lib Dems. And it would be the deal most likely to lead to electoral reform. Labour too would have to pay a higher price than just a referendum on electoral reform; it is highly likely Clegg would want Brown’s head to roll before he forms a coalition with Labour, and this would most likely mean that David Miliband, as Labour’s new leader, would be Britain’s unelected Prime Minister.

This leads to one final possible outcome. A second election within months. Gordon Brown has the right to stay on as PM until the outcome is clear. He also has the right to call another election if there isn’t such a clear outcome. Quite frankly, I doubt a second election would give the decisive result that Brown would look for. Labour is almost 50 seats behind the Tories, and they would be unlikely to win any seats back that it lost on Thursday night. The Tories need at least 20 more seats to form an outright majority government, and whilst that’s more of a possibility, if the country really wanted a Tory government they would have given the party those seats on Thursday.

This is indeed, as Winston Churchill said, “a riddle wrapped up in an enigma”. The days and weeks ahead will cause political uncertainty and this will be bad for the country. It looks very unlikely from where I’m sitting, that there will be a Tory/Liberal deal, and the alternative four-party pact to keep Labour in power is loaded with tension also. A second election is unlikely to create a clear outcome. British politics entered a new reality on Thursday, and it’s going to be very hard work to convert the democratic wishes of the British electorate into a stable government.

As utterly embarrassing as much of this campaign has been, as completely disappointing Labour’s “all star” campaign team: Mandelson, Campbell, Brown et al have been, as bleak as the outlook seems going into the final four days of the campaign, I’m still rooting for Labour. For many who work in the field, politics is about the academic, the distant concepts and policies that they know ‘affect real people’ but have not experienced first-hand. But many have not felt the real impact of good policies or the life-changing impact of poor policy in the most acute way that many folk up and down the country have. For many in the Labour Party, the pursuit of socialism is out of a charitable sense of fairness and helping those less off, rather than a Bevanite thrust to shape a fairer society than that which you experience yourself as a child.

I’ve been interested in politics for a very long time. I was born in 1985, in Pembrokeshire, south-west Wales. This was right in the thick of Margaret Thatcher’s rein as Prime Minister. The 1980s were tough times for Britain, and particularly more so for Wales. As an adult I’ve heard countless anecdotes about the time when unemployment in my area reached above 20% and at times even substantially higher than that. I was raised by a single parent, my mum, and I remember clearly long periods of time when my mum was unemployed. Not by her own fault – she’s educated and employable – this came about simply because the economy in Wales was so badly neglected by the Tory government in the 80s. And unemployment meant something much worse, much less dignified than it does now, after 13 years of a Labour government.

There were no tax credits in 1985 or 1990 or 1995. There was no record investment in the NHS. There was no Danish-style schools system for the youngest children. There was no opportunity for Welsh political expression with an Assembly in Cardiff. Life wasn’t dignified for those in the lower-middle class or the working class, and I know that was true not just in Wales but all around the UK.

I’ve a lot to be grateful for of Labour’s modernisation of Britain since 1997. As a 12 year old in that historic year, I witnessed Tony Blair’s sweep to power on a positive ticket of change for Britain, from a strange angle. I didn’t yet understand what it meant to be socialist. I frankly knew nothing about public policy, economics, foreign affairs, or what it meant to have a health service free at the point of use. I wasn’t raised by a particularly political family, and like most children, I didn’t understand that the party in power has the ability to directly affect the standard of living of the vast majority of people in the country. My journey with Labour, from infant to adult has witnessed at close contact the stark difference between hands-off conservatism and activist government.

It’s as a dad in particular that one takes public policy so seriously. In fact the very day Sophia was born (she’s now 4, and very precocious and she actually does know everything!) I was thankful of Labour’s investment in the NHS. It was a difficult birth, and there was actually a point when we thought she wouldn’t make it. I swear, there is nothing you can study on a politics degree, read in the newspaper or hear on the doorsteps about how absolutely important a good healthcare system is, which will have more of a personal impact on your political beliefs than going through a life-threatening health situation and coming out on the other side thanks to the professionalism, training and high levels of investment in the NHS. This happened before I joined Labour, and whilst I had always been Labour-leaning in my political beliefs, this personal appreciation for the NHS certainly propelled me some way toward becoming a member and activist (and staff member at one point).

Sophia is fine now, and she already supports Labour (all off her own back of course!). But just because she was born safely doesn’t mean the challenge is over. Now it’s a question of schools. Last September Sophia started at a London academy, run by a fantastic educational charity, and made possible only by New Labour’s reforms to the education system over the last decade. Inner-city schools have certain ‘niche’ challenges, particularly in such a multi-cultural, multi-faceted city where, as sad as it is, a large portion of the parents couldn’t care less about the quality of their child’s education. But this academy is doing a fantastic job of turning around the life chances of the children, despite the difficult start in life that many of them have had. I realise we are very lucky to have got Sophia into this school, and there are other schools in the area which are doing really badly. Hopefully Labour’s policy of having a well performing school take over a neighbouring struggling school will turn this reality and inequality around. I’m confident that Sophia will, through the quality of teaching at the academy, be able to go to the best universities in the world when the time comes.

As an entrepreneur, Labour policies have made my life easier. In fact Britain has one of the least intrusive business bureaucracies in the world, according to international benchmarks. You can set up a company here in a few hours. As somebody who is self-employed, earning a medium income, working tax credits have helped greatly, and I think this is one of Labour’s great legacies for the country and the child tax credit has done a lot to directly lift children out of poverty. Labour’s policies on further education have created a massive second chance for people who didn’t go to university the first time around. There are now many more mature students, in bricks and mortar universities and in the Open University than ever before. From this year I’ll be one of them – directly thanks to Labour policies and Labour education funding, I will go to university for the first time.

Anybody who asks where there’s social mobility in this country should just look at my life for an answer. From my difficult life circumstances as a child, I’ve been able to get up the ladder and build a solid foundation for my own future and the future of my children. Admittedly, I really wanted to push myself forward, and I’m not finished yet, but the policies that Labour have put in place make it possible for people who want a better life to go out and get one, either through education, entrepreneurship, hard work etc. Of course there is always more to do, and I know Labour will always stand up for those who can’t stand up for themselves. One thing that has been completely missing from the party the last few years is the language of aspiration. The opportunities are there to create yourself a wonderful life, but not enough has been done to demonstrate this reality to huge portions of society.

So whilst many in politics and the political media find their views through the study of politics, or a sense of charity, there are others who become politicised one way or another through life experiences. I see the difference in my own life and the chances of my children compared to my chances when in the mid-late 80s. That’s why, despite our imperfections as a political party, and the lacklustre campaign we’ve put on this year, I’m still proud to vote Labour, and always will be.

I’ve been racking my brain about this issue for some time now, and I still don’t have the answers. I’m no economist, but I’ve started to wonder just how serious the much talked about cuts over the next five years have to be. It’s generally accepted that for the UK books to become balanced, the Government must save somewhere near £30,000,000,000 (thirty billion pounds) each year up to 2015, so that’s the figure I will use to explain a point which I think is crucial to the discussion on cuts.

These so-called “budget deficit cuts” have become quite a heated topic during the election debate, and journalists have made a point of demanding that parties lay out how they intend to make the necessary cuts during the next Parliament. I think it’s quite right that the public understand the depth of the cuts to come, and so the journalists are doing their jobs but any talk about cuts must be done sensitively not to scare the public or the markets, and the politicians have so far resisted the opportunity to spell out exactly how cuts will be made after the election. I think this is something of a mistake, as the public are not stupid, they know cuts will be made, and the politician who can explain this in the clearest way might appear honest and hopefully capable of actually re-balancing the nation’s finances.

A lot of attention has been spent on efficiency savings, or trimming the fat of public spending waste. This will be an important part of the cuts required, but it’s by no means the most important. Theories have gone around the media about which areas of public spending might be cut and which taxes might be raised in order to find this £30bn a year over the next five years. The media have pretty much become the doom-sayers of the election, suggesting Britain could default on its debts and at the same time make life on this island terribly difficult through cuts to the NHS, education, policing, welfare and other budgets.

Even Mervyn King, the boss of the Bank of England, today said, rather unhelpfully in my opinion, that whoever wins this election will have to make such severe, and by extension unpopular cuts that they will likely be out of power for decades.

One area that hasn’t had a lot of focus so far is HM Government’s holdings in the banking sector, namely its 27 billion shares in Lloyds Banking Group and 90 billion shares in Royal Bank of Scotland Group. Taking into account today’s share prices, which are £0.66p per share for Lloyds (LON:LLOY) and £0.55p per share for RBS (LON:RBS), the total value of the shareholdings is around £18bn and £50bn respectively for Lloyds and RBS. That’s £68,000,000,000 at today’s prices, which are constantly rising, reflecting the relative health of the banking industry and the efforts of the boards of both banks to clean up their own balance sheets. When the share price of RBS hits its target of £0.75p, which is widely expected before the end of the year, that total figure will rise to about £84,000,000,000.

Why is this important? Well put it this way: £84bn is just over 50% of the total budget deficit. Half! Which means the five year cuts/tax rises have to equate to the lower figure of £81bn, or £16.2bn per year over the period. £16.2bn is far lower than the huge £30bn figure which has been bandied about by journalists and politicians over the last few weeks.

So moving on, taking these figures into account, let’s consider how difficult it might be to shift the remaining £16bn per year to halve the deficit by 2015. The remainder will need to be raised by a combination of three things: efficieny savings in public sector spending, tax rises and cuts in public services. Labour has already announced that it intends to make £11bn efficiency savings over five years, and that it will cut £4bn from public sector pay and pensions and £5bn from low priority departments. That’s £20bn, or £4bn a year over five years, taking the figure down further to £12bn. Labour have also announced the controversial (in some quarters) rise of National Insurance which should bring in another £6bn per year, taking the deficit reduction required to just £6bn per year. I reckon a VAT rise of 1.5% to 19%, which would still make Britain’s rate of Value Added Tax lower than many in Europe, would raise another £1.5bn per year.

All of these equations have theoretically brought the total cuts figure down to £4.5bn per year. That’s less than 15% of the huge £30bn figure that as I mentioned previously, has been used widely in the media to put politicians in a corner and perhaps to some extent, scare the public into fearing what will come after the election. This remaining £4.5bn per year can be tackled with some public sector spending cuts, the higher revenue received due to economic growth, which will hopefully be higher than 2-3% per year by the first quarter of 2011 and the reduced welfare bill due to lower than expected unemployment thanks to Labour’s action taken to save jobs.

I’m certainly no economist, but by all means tear these figures to shreds if you know something about public finance. Personally, I think politicians, and in particular Gordon Brown who has a strong record on economics, should lay out the facts for the public to decide, and stop the scare-mongering that is going on both by some politicians and some parts of the media. It’s not helpful or conducive to a healthy economy, as it reduces confidence in Britain to remain financially liquid and pay down its debts.

There is one benefit of the negative view of public finance in the wider electorate. Whoever is in power on May 7th has a chance to cut the deficit in half by 2015, and in 2015 use that fact to his gain at the election of that year (if it’s held in that year). If it’s not as difficult or painful as some have made out, perhaps that politician will stand to gain electorally. Perhaps that’s why the parties haven’t laid out their real deficit reduction plans in any detail.

Update: The following is from a friend of mine who is a PhD at Yale University in the States. She’s doing a PhD in Economics, so I asked her opinion (which she kindly gave, but asked to remain un-named!):

Calibrating these items should be extremely difficult. A task I am sure no one has mastered, but I agree that the outlook is less gloomy than the media would like us to believe, and for what it is worth, I wouldn’t think the UK is in a “Greece” situation.

Figures I’ve used above are from the following sources:

http://www.ukfi.co.uk/publications/
http://www.ukfi.co.uk/releases/115_2%20FW%20Update%20Jan%202010_10_AW_LR.pdf
http://www.thisismoney.co.uk/news/article.html?in_article_id=503516&in_page_id=2
http://www.guardian.co.uk/politics/2009/aug/20/vat-cut-tax-darling-ons
http://www.ukpublicspending.co.uk/