“What About the Rentiers?”: The Formation of the National Government (1931), Part 1

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The formation of the National Government in August 1931 remains one of the more controversial issues in Labour Party and 20th Century British political history. For decades afterwards, many on the left talked of “the Great Betrayal of 1931.” It would take 27 years before this thesis was seriously challenged. (1) As Herbert Morrison (a major figure in the Labour Party during the 1930s and 1940s) later wrote:

“The spiritual and psychological effects upon the Labour Movement of what became known as “the Great Betrayal” were, I am inclined to think, as serious as the thing in itself and its immediate electoral consequences. It left in the Party a spirit of distrust of the idea of leadership, a determination that for the time being there should be no more great men, and seeking to tie the leadership with conditions and checks of one sort and another. This spirit of distrust and apprehension of other betrayals went on for round about ten years.” (2)

In the May 1929 General Election, the Labour Party had won 37% of the popular vote (their best showing up to that date) and returned 287 MPs. (3) As the largest Party in Parliament, despite being 21 seats shy of an overall majority, the Labour Party formed the new Government. James Ramsay MacDonald became Prime Minister for the second time (his first premiership being for nine months in 1924). The Government lasted two years.

During those two years, the Great Depression struck. When the Government took office in June 1929, unemployment was about 1.2 million, which was actually an improvement from 1928. (4) A year and a half later, however, it had doubled. (5) At the same time, several European banks collapsed, most notably the Credit Anstadt, Austria’s chief bank. This helped to create a world financial crisis, as several German banks collapsed in an almost domino effect. Naturally, Britain’s turn had to come sometime. By the end of July 1931, it did.

In early 1931, the Labour Government faced parliamentary scrutiny over Government spending. As a result, the were forced to accept the Liberal Party’s demand (the Party maintaining the Labour Government in power, as it was a minority Government) that they create a special committee, known as the May Committee, to examine government expenditures. By the end of July, just as many European banks were failing, the committee released its long awaited report. (6) It estimated a budget deficit of £120 million for 1932, and recommended new taxes of £24 million and budget cuts of £96 million to make up the shortfall. (7)

The report put the Labour Government into turmoil. Many Labour MPs, including some Cabinet members, believed that the level of cuts was an abandonment of Labour Party principles. To make matters worse, many investors, believing that Britain was on the verge of bankruptcy, began to demand gold and U.S. dollars for their pounds. (8) By the beginning of August, the Bank of England’s gold reserves were getting dangerously low.

As August was typically the vacation season in England, many politicians were not in London, and Parliament was recessed. Stanley Baldwin, the leader of the Opposition (the Conservatives) was in the French resort town of Aix-les-Bains; MacDonald at Lossiemouth, a remote Scottish resort. On August 11, barely a week into the vacation, MacDonald, his Cabinet, as well as the Opposition leaders – Baldwin, and Herbert Samuel, the leader of the Liberal Party – were forced to come back to London. According to Neville Chamberlain’s (he was the “Shadow Chancellor of the Exchequer”) (9) account of what happened, representatives from the Bank of England told MacDonald, Philip Snowden (the Chancellor of the Exchequer), (10) and others:

“1) that Britain was on the edge of the precipice and, unless the situation changed radically, we [Britain] should be over it directly, 2) that the cause of the trouble was not financial but political, and lay in the complete want of confidence in His Majesty’s Government existing among foreigners, and 3) that the remedy was in the hands of the Government alone.” (11)

Thus, the only way out for the Government was to adopt the May Committee’s report, in full, and quickly.

MacDonald took this back to his Cabinet, but faced stiff resistance. A majority of his Cabinet balked at the prospect of cutting Unemployment Insurance benefits by 20%, a key proposal in the May Report. (12) The Cabinet wrangled for two weeks. For a while, it looked as the Cabinet would agree to the cuts. However, when the Trades Unions Congress, (the British equivalent of the AFL-CIO) came out against the cuts on August 20, all hope of unity rapidly dissipated. (13) On August 23, the Cabinet split, with nine opposing the cuts, with eleven accepting the May Report. The next day the Second Labour Government resigned.

Footnotes:

  1. (1) Reginald Bassett, Nineteen Thirty One: political crisis, (NY: St. Martin’s Press, 1958).
  2. (2) John F. Naylor, Labour’s International Policy: The Labour Party in the 1930s, (London: Weidenfeld and Nicolson, 1969), p. 21, quoting Herbert, Lord Morrison, An Autobiography, (London: 1960), pp. 131-32.
  3. (3) Peter Clarke, Hope and Glory: Britain, 1900-90, (NY: Penguin, 1996), p. 407.
  4. (4) Charles Loch Mowat, Britain Between the Wars, 1918-40, (Chicago: The University of Chicago Press, 1955), p. 357.
  5. (5) Ibid.
  6. (6) A.J.P. Taylor, English History, 1914-45, (NY: Oxford University Press, 1965), p. 288.
  7. (7) Note, this was before Keynesian economics became universally accepted. It was considered wrong to run a budget deficit during peacetime.
  8. (8) In 1925, Winston Churchill, then the Chancellor of the Exchequer, placed Britain back on the gold standard at the pre-World War I parity of $4.86 U.S. Dollars to the Pound.
  9. (9) The Opposition’s spokesman for financial issues.
  10. (10) The Chancellor of the Exchequer is one of the more powerful posts within the Cabinet. The post is equivalent to a combination of the American posts of Secretary of the Treasury, the Director of the Office of Management and Budget [O.M.B.], and the Chairmen of both the Senate and the House Appropriations Committees, the Chairman of the House Ways and Means Committee, and the Chairman of the Senate Finance Committee.
  11. (11) Mowat, p. 383, quoting Keith Feilung, Neville Chamberlain (London: 1946), p. 191.
  12. (12) Ibid.
  13. (13) Taylor, p. 291.
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