The Unappealing Choices After an Inconclusive Election

It has been a generation since the British electorate delivered such an inconclusive result at a general election. Not since Edward Heath posed the question "Who Governs Britain?" in February 1974 - the answer, of course, was "Not you" - has one of the two major parties failed to secure a majority in the House of Commons.

But this election result was only a surprise to consumers of mainstream media hype. It turned out that all the brouhaha about the performance of Nick Clegg, the Liberal Democrat leader, in the first presidential-style television debate mattered not a jot. Indeed, his party lost five seats.

The dire state of the economy all but guaranteed a Labour defeat but it was not sufficient to give David Cameron's Conservatives a majority. The fundamental skew of the electoral map against the Tories denied it to them, just as serious students of the subject had predicted months ago. Changes in demography and population density; the growth of small parties; the extinction of the Conservative vote in Scotland; and the post-Thatcher critical mass of people who fear Tory cuts - these factors together always made it unlikely that Mr Cameron would win this election outright.

The Tory leader has often been criticised from the right of the party for his unwavering "One Nation" centrism. But it is hard to believe that any other strategy would have delivered more seats in a country that no longer has a natural Conservative majority.

Now what? To some commentators, this looks like a very European result. The third-party Liberal Democrats hold the balance of power, just as their Free Democrat counterparts frequently have in Germany since the war. Britain's choice now, it seems, is between a blue-yellow coalition or a red-yellow one. Either way, we are going to end up with some version of proportional representation. That could make the Lib Dems a near-permanent fixture in government.

But does Mr Clegg really have the leverage to extract electoral reform from one of the two big parties? I think not. The Tories wouldn't benefit from it and disbelieve in it. The incorrigibly cynical Gordon Brown might offer it, but a Lib-Lab coalition would lack both a majority and legitimacy.

Even aside from PR, is there enough common ground for a Cameron-Clegg coalition? Surely not. The two parties agree only on minor issues. On the big stuff, notably Europe and immigration, they are miles apart.

And if Mr Cameron wanted to change the rules of the electoral game in a way that would really benefit his own party, it would not be Mr Clegg he would turn to, but Alex Salmond, Scotland's first minister. A really bold stroke would be for Mr Cameron to write Scotland off by offering the Scottish National party independence and getting rid of the Scots MPs at Westminster, at which point he would have a majority to govern England, Wales and Northern Ireland.

However, I suspect this is not a road the cautious Mr Cameron will choose. So here are three other options:

1. Lord Derby: Minority Rules

To prepare for option 1, a thorough immersion in Anthony Trollope's Palliser novels is recommended. Trollope's saga is set at a time when the Conservatives could govern only as a minority because of their split over Free Trade. It was the hard task of the 14th Earl of Derby to preside over three fragile governments that came into existence only when the Whigs and Liberals quarrelled over such mysteries as anti-disestablishmentarianism or the Schleswig-Holstein question.

This is my least favourite option, however, since it condemned the Victorian Tories to more than two decades of weakness until the Liberals finally split over Irish Home Rule and the Unionists switched sides.

2. Stanley Baldwin: A National Government

Another course of action would be to form a "national government" - an apparently broad-based coalition which is, in fact, a vehicle for Conservative rule. This worked beautifully for Stanley Baldwin in the teeth of the Great Depression, effectively putting the Tories in power for 14 years. The aim would be, as in 1931, to split both the Liberals and Labour by luring centrists into supporting emergency economic measures.

The difficulty is that this would require Mr Brown to play the part of Ramsay MacDonald, who stayed on as prime minister between 1931 and 1935, having been expelled from his own party. Hard though it is proving to eject Mr Brown from Downing Street, it is harder to believe that he wants to go down in history as the second Scottish leader to betray the Labour movement.

3. Harold Wilson: Double or Quits

Mr Cameron's third and most attractive option is to try a version of Harold Wilson's strategy after February 1974. The Conservatives clearly lost that election, but Labour were more than 30 seats short of a majority. Wilson formed a minority government and then called a general election eight months later. It worked - just. Labour outnumbered the other parties by just three seats. It must be said that there's an unnerving similarity between our predicament today and the situation in 1974. Heath was destroyed not just by the oil price rise that followed the Yom Kippur war; he was also destroyed by the bubble inflated by Anthony Barber, his chancellor. House prices and the stock market both soared as a result of ill-advised monetary relaxation. When Barber then switched from "go" to "stop", asset markets crashed triggering the secondary banking crisis. A weak Labour government then presided over five years of stagflation. Inflation surged to nearly 27 per cent. Public borrowing spiralled so far out of control that in 1976 the International Monetary Fund had to be called in.

Mr Cameron must be only too aware of how close to the edge of an even steeper precipice Britain now is. For all his self-promotion as a prudent chancellor and the man who "saved the world" when the financial crisis struck, Mr Brown's stewardship of the British economy has been a disaster.

According to Citigroup forecasts, the government deficit will be about £167bn in 2010-11. That is about 11.3 per cent of gross domestic product. Those figures - which are without precedent in peacetime - are quite bad enough in themselves. Put in international context, they are mind-boggling.

Last year, the UK had the second-largest cyclically adjusted primary deficit (excluding interest payments) in the developed world (6.8 per cent of GDP). Only the US has a bigger budgetary hole. The Greek figure was 6 per cent.

There are only two consolations. First, the UK's net international investment position is positive and its current account deficit modest. The risk of a rush for the exits by foreign investors is, therefore, smaller than in the Greek case. Second, Britain did not join the European Monetary Union - perhaps Mr Brown's only good decision as chancellor - and so retains the right to let its currency depreciate and (if bond investors are unwary) the power to inflate away a part of its debt burden. Small comfort, isn't it?

The reality is that the new government will have no choice but to implement far tougher spending cuts and tax rises than any party dared to propose during the election.

None of these options is irresistibly attractive. It will be extremely hard for the Tories to win a second election after eight months of agonising austerity.

But it is hard to think of a better way to fashion a decent stretch of Conservative government from the unpromising result of this election. Better surely to be a Tory Wilson than to be a second Derby or Baldwin.

The writer is the Laurence A. Tisch, professor of history at Harvard and a contributing editor of the FT