SCENARIOS-Potential fallout from Britain's expenses scandal

LONDON May 18 (Reuters) - The leader of Britain's opposition Conservative party called for parliament to be dissolved on Monday, saying it was the only way to resolve a parliamentary expenses scandal that has angered British voters.

David Cameron's call follows demands for the Speaker of parliament, a Labour veteran, to step down, with opposition MPs angry that he was not seen to do enough to prevent the expenses row. If the speaker were to go, it could precipitate further turmoil in the 800-year-old parliament.

The following questions and answers look at the potential implications of the expenses affair

WHAT HAPPENS IF THE SPEAKER OF THE HOUSE STEPS DOWN?

While the speaker, Michael Martin, is unlikely to resign his post and has already sidestepped calls for him to go, if he were to be forced out by internal parliamentary dissent -- via a vote of no confidence say -- it could precipitate a series of events.

Under parliamentary rules, a new speaker would have to be elected by secret ballot. That could prove a bitterly contested, drawn-out affair, with the rules stating that any candidate must get more than half the votes in the house. Labour retains a solid majority in parliament.

WHAT ABOUT DISSOLUTION OF PARLIAMENT, IS THAT LIKELY?

It remains an extremely slim possibility, although it is one that the Conservative opposition is pushing for, calculating that disaffection with the government and anger over the expenses -- even if all parties bear responsibility -- would see them romp to an easy election victory after 12 years in opposition. Cameron has said he will call for dissolution and new elections to be held after European elections on June 4.

Dissolution would involve Prime Minister Gordon Brown asking the Queen to dissolve parliament and call new elections.

Officially, an election only has to be held before June next year, with the setting of the date a decision that rests with the government. Brown is keen to leave the poll as close to the deadline as possible, giving himself and the party time to recover and mount a decent challenge. But if it becomes clear that the government cannot function effectively, does not enjoy a workable majority in parliament and the prime minister is under pressure to go, Brown may have no choice but to call an early election. We are a long way from that scenario, however.

COULD THE GOVERNMENT FALL AND BROWN BE REPLACED?

In short, not likely. Labour have been behind in opinion polls for months and the expenses scandal has been another hit to their popularity. But all leading parties carry some blame in the expenses affair; it is not as if Labour has to fall on their sword over it. While Brown is unpopular, he is expected to remain in office until the election is called, even if his party continues to slump in polls. With the writing on the wall for Labour already, it looks likely that Brown will be left to carry the can rather than being replaced before the election.

However, a particularly poor showing in European and local elections on June 4 could prompt a challenge to Brown's leadership by MPs fearful of a general election wipeout.

HAVE WE SEEN THE WORST OF THE SCANDAL OR COULD IT DEEPEN?

The expenses revelations -- which essentially boil down to MPs having used their allowances regime to claim back mortgage interest payments and other costs on their designated second homes -- have greatly embarrassed members of parliament and shown many of them to be greedy and out of touch.

But what they did, in the vast majority of cases, was within their own rules and not illegal. It may be that a handful of MPs will ultimately be subjected to deeper scrutiny, possibly with the police called in if there is any evidence of criminal wrongdoing. Even if that is a possibility, it is likely to be isolated, involving only a few MPs.

SHOULD INVESTORS BE WORRIED ABOUT WHAT IT ALL MEANS?

There is no evidence that this scandal is having a financial or broader UK investment impact. London's stock and bond markets have ignored it as a factor, traders have said. The London FTSE index .FTSE rose 2.25 percent on Monday, bonds prices firmed and the pound strengthened slightly.

While the British government has become the largest shareholder in several high-street banks as a result of the financial crisis, analysts say there is no reason to think the expenses affair has increased the risk in those institutions.

The work of parliament and the functioning of government are wholly separate, and teams of specialists with no link to parliament are overseeing the government's stake in those banks.

Britain is the world's 6th largest economy and London is a global financial centre, serving as a headquarters for international business and commerce. Foreign direct investment in Britain was 14 billion pounds in the last quarter of 2008, even at a time of financial crisis. Debt and equity portfolio investment was nearly 44 billion sterling.

The expenses scandal is unseemly and costly, and opposition parties are keen to gain as much out of it as they can, but it is not about to change the decisions of those with large portfolios looking to make rational investments. For a related news story, click on [nLI538520]

(Reporting by Luke Baker; Editing by Janet McBride)