Betting markets suggest second UK election possible in 2015

In the UK, you can place a bet on just about anything.  You can bet on the result of this afternoon's QPR-Everton match (Everton is the favourite as of this writing).  You can bet on who will replace Jeremy Clarkson as co-host of BBC's Top Gear (not sure whether 12/1 for Piers Morgan or 50/1 for Nigel Farage is more ridiculous).  You can bet on the winner of this year's Eurovision Song Contest (40/1 for the UK winning, meaning if I bet £1, I lose £1).

Of course, you can also bet on 7 May elections here in the UK.  You can bet on any possible outcome, including which party will finish with the most seats in the House of Commons, what kind of government will be formed, who will be leading that government, and the fate of the party leaders in their jobs both as leaders and as MPs.  You can even bet on who will win in each of the 650 constituencies, and it's the odds that bookmakers are offering on these kinds of bets that tell us the most about what to expect once the polls close in 45 days' time.

The odds that bookies offer on an event is representative of how likely they and their customers believe it is to happen.  According to Odds Checker as of last night, the overwhelming consensus (2/9) is that the final result will be a hung parliament, meaning that if I were to place a £9 bet, I would only win £2 if that was the result.  As for the type of government to be formed, it seems as if the betting public believes that a minority government is most likely, for one party or the other (10/3 odds for Labour, 7/2 for the Conservatives). Oddly though (no pun intended), even though the odds are shorter (i.e. more likely) for various types of Labour government than similar types of Conservative government, they are also shorter for David Cameron being PM (1/2) than for Ed Miliband (6/4).  I'll leave it to the financial traders among you to work out a way to turn this into an arbitrage opportunity.

But what happens when we look at each of the individual constituencies?  I took the odds from each constituency to estimate the share of the vote each party would get, and consequently, what the makeup of the House of Commons would look like.  As you can see, it literally could not get closer between the two parties.

Implied results as of 21 March 2015

We know that there has been a negative trendline for Labour over the last 12 months, and the betting community seems to believe that there will be a further 1.5% swing from Labour to the Conservatives between now and the election.  They also believe that the Liberal Democrats will not do as badly as the opinion polls are suggesting (though it will still be quite bad), and that UKIP will make their way into the House of Commons as the fifth largest GB party.

So what would such a result mean for the formation of a government?  When we consider that neither Sinn Fein MPs nor the speaker will ever vote, we effectively need 323 seats for an overall majority.

Under our constitutional conventions, the incumbent Prime Minister can make the first attempt to form a government.  He would start with his 275 MPs, meaning he needs to find another 48.  He can probably get 4 from UKIP in agreement for an EU referendum by Christmas, and it's likely that the 9 DUP MPs are more likely to support Cameron than Miliband.  Add the former-UUP independent Sylvia Hermon in Northern Ireland, and that gets us to 289.  Because the SNP supporting the Tories is out of the question, that leaves the Lib Dems.  Even if the Conservatives managed to get the support of both UKIP and the Lib Dems (which is highly unlikely), they would still come up short in terms of seats (320).

So it's clear that Cameron won't be able to form a government on these figures, but what about Miliband. Let's start with his 275 MPs, include the SDLP in Northern Ireland, and the Green MP Caroline Lucas, which leaves us with 44 more MPs to find.  He now has two options: the Lib Dems or the nationalists.  Adding the LibDems would only bring us up to 310, which is not enough.  This means that, on these figures, a Labour government would require SNP support, as well as either the Lib Dems or Plaid Cymru, in order to have a majority.

Out of all those possibilities, the only one that I can see as being even remotely plausible is Labour (275) + SDLP (3) + SNP (41) + Plaid (3) + Green (1) = 323, exactly the number that would be needed to form a government.  But that would be a five-party deal, and we need to remember how painful it's been with a two-party arrangement.  Such a government would simply be too unstable to be effective, as even one rogue MP from any of these parties would be enough to bring it down.

Quite simply, if these are the figures that come out, we are almost certain to have another election within 12 months, if not by Christmas.  So if you've had enough of politicians making promises to you that you know are baloney, then I'm afraid you'll be seeing more of it this year.