The negotiations between the Lib Dems and the Conservatives are so secretive that we can only guess what the sticking points might be. But Benedict Brogan's report in today's Telegraph is the best account I've read of the state of play.
Brogan suggests that David Cameron may eventually offer Nick Clegg electoral reform in the form of the Alternative Vote:
Senior sources speculate that he could eventually offer the Lib Dems a form of electoral reform based on the additional vote system (AV) or even the AV-plus devised by the Lib Dem peer Lord Jenkins -- and rejected by Mr Blair -- more than a decade ago. Both maintain the constituency link that Tories say is essential, and both require voters to express a second preference.
The Alternative Vote, as I've noted before, is not a proportional system and it can produce even more distorted outcomes than first-past-the-post. But because it allows voters to rank candidates in order of preference -- eliminating the need for tactical voting -- it remains a distinct improvement on the status quo.
For the Tories, there may be a self-interest in adopting the system: the party would benefit by receiving second-preference votes from Ukip supporters. As Brogan writes:
For the Tories this would kill off the UK Independence Party vote which cost them an estimated 21 seats last week -- enough to give them a majority. Even far-right Tories have spotted this opportunity.
It isn't quite true to say that Ukip cost the Tories 21 seats on polling day. There are 21 constituencies in which the Ukip vote exceeded the Labour majority, but there's no guarantee that every Ukip supporter would defect to the Tories. Some would abstain or might vote for another minority grouping such as the British National Party or the English Democrats.
But I think it's safe to assume that the withdrawal of Ukip, as demanded by some conservative commentators, would have gifted the Tories at least an extra ten seats.
There's little chance of the Tories achieving a coalition, as opposed to an informal pact, without making some offer beyond that of an "all-party inquiry". This may be it.