2M - Political developments: the Labour government
Learn how the second Labour government's reform programme became entangled with the Depression, why the 1931 crisis produced a National Government, and how MacDonald, Baldwin and Chamberlain shaped its direction.
Labour reform and minority constraints
Labour returned to office in June 1929 with the largest number of MPs, but without an overall majority. MacDonald wanted to demonstrate that Labour could govern responsibly while improving the lives of working people. The need for Liberal toleration limited contentious measures. Ministers also faced resistance from the House of Lords and constraints imposed by the Treasury's view of affordability.
The government made meaningful domestic changes. It extended contributory pension provision, relaxed aspects of unemployment-benefit qualification and sought to improve housing. Arthur Greenwood's Housing Act of 1930 supported slum clearance and rehousing. It connected public health and family welfare to the condition of the urban environment. Clearing an unhealthy district, however, required money, suitable replacement housing and local implementation; legislation did not transform every household immediately.
The Coal Mines Act of 1930 attempted to rationalise an industry suffering from excess capacity and competition. It introduced arrangements to regulate output and prices and reduced the permitted working day from eight hours to seven and a half. Intervention could improve coordination, but restricting output did not by itself create new export markets or remove all inefficient capacity.
Other ambitions met political obstacles. Labour did not secure repeal of the 1927 trade-union restrictions, and a proposal to raise the school-leaving age encountered resistance. Such limits matter when assessing its record: a minority administration could initiate reform yet fail to enact its whole programme.
The world Depression changed the scale of the challenge. A government elected to relieve hardship now faced falling trade and rapidly rising unemployment. The increase in needs was accompanied by declining revenues and heavier demands on unemployment insurance. A domestic reform programme became inseparable from a dispute about economic policy.
Unemployment, orthodoxy and alternatives
The government's response to unemployment was constrained by financial orthodoxy. Snowden prioritised balanced budgets and confidence in sterling, while the pound remained on the Gold Standard. Ministers feared that extensive borrowing would weaken confidence and make financial instability worse. They pursued some development and public works, but not a large, coordinated programme of spending sufficient to offset the collapse in private demand.
This approach created a policy tension. When firms cut employment, workers spent less, weakening the markets of other firms. Government restraint could reinforce that contraction. Conversely, supporters of restraint argued that stable finances would encourage investment and prevent an even more destructive currency crisis. Their expectations should be explained, rather than dismissed as a conscious desire to create unemployment.
Oswald Mosley, then a Labour minister, proposed a more interventionist response in 1930. His memorandum advocated expanded public works, stronger central direction and measures to protect or manage the domestic market. He resigned when the government rejected his approach. His later turn to fascism does not mean that every advocate of employment spending was a fascist: proposals for investment could be defended within parliamentary democracy, as Lloyd George and Keynes did.
The government's inability to agree on a major alternative weakened confidence within Labour. J. H. Thomas's attempts to promote employment and negotiate assistance did not match the speed of the downturn. Trade-union leaders resisted policies which would make unemployed workers bear the burden of financial adjustment. The parliamentary party increasingly faced a choice between its social obligations and the chancellor's financial priorities.
The financial crisis and National Government
The crisis of summer 1931 combined international financial pressure with domestic political disagreement. Banking crises in Europe encouraged investors to withdraw funds from London. Defending sterling's gold parity consumed reserves. Falling tax revenue and unemployment-insurance borrowing also raised fears about the government's finances, though a currency crisis and a budget deficit were related problems rather than the same thing.
The May Committee's report in July forecast a large budget deficit and recommended substantial expenditure cuts, especially in unemployment provision. Its assumptions and remedies were contested, but its publication strengthened pressure for immediate economy. Foreign lending arrangements and the wish to maintain confidence made ministers feel that a decision could not be postponed.
The Labour Cabinet divided over proposed cuts, including a reduction in unemployment benefit. Some ministers believed accepting them was necessary to avoid financial collapse; others regarded the cuts as unacceptable and economically harmful. The Cabinet could not agree on a complete settlement, and MacDonald resigned in August.
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