David Cameron and Ed Miliband eye deals in hung parliament

David Cameron and Ed Miliband have begun planning for breakneck dealmaking in a hung parliament, as polls suggest that the Conservatives will narrowly emerge as the biggest party in Thursday's election.

Mr Cameron has ordered his policy chief Oliver Letwin to work up a deal with the Liberal Democrats, amid warnings that Nick Clegg will demand "a heavy price" if his party is to consent to Tory demands for an EU referendum.

Senior Lib Dems believe a deal could be concluded by the end of next week but one said: "The Tories shouldn't underestimate how huge a deal the EU referendum is for us. Much of any negotiation would focus on that."

Ed Miliband set out what allies said was Labour's first precondition for any cross-party talks in the event of a hung parliament when he said: "Any government I lead will get rid of non-dom status."

Mr Cameron and Mr Miliband will conclude a frenetic round of final campaigning on Wednesday with rallies in the north of England but their attentions are already turning to the immediate aftermath of the poll.

An FT/Populus poll put Labour and Conservatives neck and neck on 34 percentage points but academics and political bets suggest Mr Cameron will emerge with the most seats on May 8.

After unprecedented trading on political betting markets, IG Group clients predict there will be 291 Conservatives seats, down from 306 at the 2010 election, with 266 for Labour, up from 258 last time. Spreadex indicates about 289 seats for the Conservatives, with 267 for Labour.

Mr Cameron's allies say if the prime minister wins the most seats he will declare victory and immediately start talks with Mr Clegg, in an attempt to secure the 323 votes that he needs for a Commons majority.

Leading Conservatives say they would require the Lib Dems to sign up to "English votes for English laws", changes to parliamentary boundaries and the full replacement of the Trident nuclear deterrent in any talks.

But Tories admit the biggest issue will be Mr Cameron's proposed EU referendum and the prime minister has told Mr Letwin to go through Mr Clegg's manifesto looking for possible deals.

The Lib Dems' demands will include more spending on schools, green legislation and a softening of austerity measures, offset by higher taxes for the wealthy. MPs from both parties would have to approve any deal.

But Mr Cameron might not be able to reach the 323-vote winning post even with the support of Lib Dems and the Democratic Ulster Unionists, opening the door for Mr Miliband to become prime minister with the backing of the Scottish National party, Plaid Cymru and Greens.

Labour still believes it could form a more durable coalition than the Tories even if it comes 20 or 30 seats behind David Cameron's party and has identified "considerable overlap" in policy with the Lib Dems.

Senior Labour figures believe that it will become obvious quickly on Friday if Mr Cameron "doesn't have the numbers" at which point Ed Miliband would urge him to quit.

If Mr Cameron clung on and put together a Queen's Speech with no majority, Labour MPs would have no qualms in joining forces with the SNP in voting it down, according to eight party candidates who have spoken to the Financial Times.

However, some senior party figures recognise that putting together a rival grouping could prove difficult if the public believes that the Tories "won" the election.

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