1929-1940 The Second Labour Government

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Second Labour government

  • Ramsay MacDonald PM for 2nd time 1929 - prospects favourable.
  • dependent on Liberal support but could put beliefs and ideas into action.
  • Arthur Greenwood's Housing Act - >ed subsidies for house-building & introduced slum clearance schemes.
  • Land Utilisation Act and Agricultural Marketing Act - marketing boards for producers.
  • Coal Mines Act to 7 1/2 - unemployment benefits >ed.
  • Failed reforms -
    • education bill to > school leaving age to I5,
    • fixing working week at 48 hours &
    • repealing 1927 Trade Union Act.
  • MacDonald devising policies to < unemployment - had to face Wall Street Crash & Depression
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Economic crisis

  • October 1929 - American stock market crashed
  • Great Depression did not reach its worst until 1931
  • Britain soon felt effects - oss of American markets & < European trade
  • 1929-1931 - value of exports 1/2ed.
  • Unemployment >  2.5 million by 1931 & 3 mil 1932.
  • Coal & shipbuilding badly affected.


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The financial crisis and the Labour Party

  • 1930 - Economic Advisory Council of industrialists & economists
  • > unemployment = > unemployment benefits - strain on government finances.
  • Labour Party stood for the welfare of the working man but allowing money to disappear in benefits undermined MacDonald's belief in 'balanced budget' & appeared irresponsible
  • The Chancellor of the Exchequer, Philip Snowden, accepted that a balanced budget and maintaining the  Gold Standard were fundamental principles
  • However, balancing  the budget = public spending cuts & .
  • Oswald Mosley - expansionary government spending policy, financing public works schemes and social reforms through government loans - Labour should put WC's needs first.
  • MacDonald not convinced Mosley's ideas would work - fearful radical measures would undermine confidence in British economy overseas & > unemployment - economists were divided.
  • Mosley resigned May 1930 - 'Mosley Memorandum' rejected
  • Cabinet could not agree on size of cuts  & need to win over opposition
  • WSC = major European banking crisis May 1931 - spread to Britain by July - depositors hurried to withdrawal
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Financial crisis cont'd

  • Britain on Gold Standard - withdrawals threatened bank's gold reserves.  
  • MacDonald appointed  May Committee, chaired by Sir George May the secretary of the Prudential Insurance Company;
  •  report was published on 31 July - predicted budget deficit of £120 mill by 1932 unless cuts made
  • recommended £96.5 million cuts  - pay cuts in public sector & 20% cut in unemployment benefit and heavier taxation.
  • 2 Labour members produced 'minority report' - ignored
  • Report deepened crisis still further - drew attention to Britain's problems.
  • 1/4 Britain's gold reserves disappeared
  • mid-August  - ministers broke off summer holidays just after the report's for emergency meetings
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The fall of Labour

  • May recommendations caused outcry from Labour Party and TUists
  • wanted the government to find money by taxing rich > heavily not cutting government spending
  • Some believed crisis was a good thing - clear way for Socialism.
  • MacDonald felt compelled to follow broad guidelines of report.
  • favoured taxation increases but other parties would not agree to these - accepted he had to < unemployment benefit - cabinet divided.
  • 12.August - 'Cabinet Economy Committee' met  - agreed to pay cuts and l0% cut in unemployment benefit -would have taken unemployment insurance back to 1929 level
  • cuts of £38 million - less than May Committee proposed.
  • 19 August - cabinet agreed to cuts of £56 million - leaders of other parties rejected these - too small.
  • 18th - MacDonald and Snowden met with TUC leaders - rejected any cuts that affected unemployed & May Committee's proposal



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Fall of Labour

  • Bank of England desperately needed to arrange new loans from New York & Paris - would only agree if cuts to unemployment benefits made.
  • Cons & Libs accepted but MacDonald struggled to persuade Labour
  • MacDonald knew proposals represented: 'the negation (or abandonment) of everything that the Labour Party stood for' but argued for vote of approval in the national interest.
  • 23 August - cabinet gave vote of approval - only by 11 to 9 votes.
  • vote split Labour cabinet badly - MacDonald couldn't continue
  • to lead it.
  • 24 August - went to Buckingham Palace to give resignation to King George V
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Formation of the national government

  • King had spoken to other party leaders - Liberal Herbert Samuel and Baldwin - agreed that MacDonald would continue as PM at head of  'National government' based on support from all parties 
  • planned to be temporary arrangement & 'government of persons' rather than coalition 
  • Cons and Libs saw certain advantages in allowing MacDonald to continue as PM - drastic economic cuts and generally unpopular measures taken
  • MacDonald persuaded it was his duty to stay on.
  • Labour taken by surprise - only Snowden, Thomas and Sankey chose to follow MacDonald into the new government.
  • became PM of National government resting on support of Cons & some Libs 
  • Labour supporters never got over what they felt was an underhand move by MacDonald and betrayal of whole Labour movement


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Formation of national government

  • Events of August 1931 led to great bitterness in Labour Party - controversy ever since
  • Shinwell was junior minister in MacDonald's 2nd Labour government
  • Snowden joined National government reluctantly but left when it abandoned Free Trade
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Interpretations of MacDonald's action - Criticisms

  • Labour MPs, party members & TUists accused MacDonald of treachery & abandoning cause of working men & only thinking of his own career ambitions in accepting leadership of National government. 
  • Clement Attlee - 'the greatest betrayal in the political history of this country' and to this day there is a view current among 
  • current left-wing thinkers - MacDonald gave in to 'Capitalism' & placed demands of banking establishment above beliefs of Labour
  • had become arrogant & convinced only he knew best - made him disloyal
  • needlessly set up May Committee instead of relying on Economic Advisory Council
  • had allowed Labour's opponents to decide Labour's financial policy
  • Was not brave enough to consider new ideas - ignored imaginative schemes of Oswald Mosley.
  • Slow to respond to crisis - allowed it to get worse
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Criticisms of MacDonald

  • allowed atmosphere of despondency to take hold & increase drain on sterling
  • Failed to appreciate depth of feeling within Labour over unemployment benefit cuts.
  • Too ready to ignore unions & advice of cabinet ministers
  • Sacrificed Labour for interests of upper classes
  • New Statesman magazine referred to 'aristocratic embrace' - suggested MacDonald had become snobbish & deserted working class.
  • deliberately planned break up of Labour government to forward his ambition to be 'saviour' of his country 
  • When party split became obvious, MacDonald failed to take honourable course and resign
  • He aligned himself with the Conservatives committing the ultimate act of betrayal.
  • Called election 1931 - promised not to do so & timing of election caused electoral disaster 
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Defenses of MacDonald's actions

  • had no reason to distrust 'orthodox economic principles' - widely accepted 
  • believed that coming off Gold Standard would lead to massive inflation
  • acted honourably by sacrificing his party principles for tgreater national good, 
  • King George V told MacDonald that he had 'put aside all personal and party interests to stand by the country in this grave crisis'.
  • continued to borrow money until summer 1931 to maintain unemployment insurance fund - only changed direction when B of E's gold reserves were threatened 
  • Had he not taken action confidence in £ would have been lost
  • Was a founder of Labour - no reason to destroy his party. 
  • No evidence that MacDonald had been planning to become leader of 'National government' before August 1931 - probably not his suggestion
  • biography 1977 by David Marquand -formation of a National government was what MacDonald wanted. 


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Defenses of MacDonald

  • Knew showing 'responsibility' and acting in 'national interest' essential - those who denounced him thought his primary loyalty should have been to Labour
  • Ramsay MacDonald was major figure in history of Labour - led it through formative years and headed 1st Labour governments.
  • would be remembered as Great Leader without 1931 crisis
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The 1931 crisis and its impact on the Labour

  • MacDonald's new cabinet = 4 Cons, 2 Libs and 3 Labs 
  • had support of a dozen Labour backbenchers but rejected by the rest 
  • 3 weeks later - MacDonald formally expelled from membership of party 
  • Snowden able to gain parliamentary approval for proposed spending cuts & loans banks wanted in September but Britain's currency not saved. 
  • 21 September - Gold Standard abandoned. 
  • MacDonald called general election to restore confidence & appeal to electorate for a 'Doctor's mandate' for National government's programme.
  • disastrous for Labour - reduced to only 52 seats - 288 seats in 1929
  • many senior figures lost seats inc. Arthur Henderson


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Impact on Labour

  • Provoked further anger towards MacDonald & those who had followed him into National government.
  • MacDonald became 'prisoner' of the Conservatives
  • leadership of Labour passed from party led by George Lansbury to TUs - Bevin important influence.
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Labour recovery during the 1930s

  •  Labour won most by-elections 1931-1935 - won control of London County Council 1934. 
  • National government won 1935 general election but Labour gained 154 seats - > of 102 seats from 1931
  • Share of total votes 38%  - highest Labour had achieved in any general election
  • Labour's total vote 1931 was 30% - collapse to 52 down to peculiarities of Britain's 'first past the post system' 
  • Liberal Party had split over formation of National government 1931 - split again in 1932 when government moved away from Free Trade
  • 1935 election disaster for Liberals - no more than minor party by end of decade. 
  • Neither CPGB & BUF did badly in elections - Communists won 1 seat 1935 & Fascists none 
  • Labour's leaders rejected attempts to link with Communists in 'Popular Front' against Fascism. 
  • National government policies - disillusionment among some anti-Labour workers in 
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Recovery of Labour

  • 1931 - went back to Labour 1935. 
  • Unemployment > to 3 mill 1932 & high levels of long-term unemployment throughout 1930s 
  • Cuts in unemployment benefit, means test & 'hunger marches' helped maintain WC loyalty to Labour  
  • Reforms in party organisation -  more influence into hands of moderate TU leaders such as Ernest Bevin.
  • Seniority & moral standing of Arthur Henderson &  George Lansbury helped stabilise party after 1931
  • Lansbury by Clement Attlee 1935 - lacked charisma but efficiency and determination enabled him to rebuild party.
  • 1934 - Labour published most thorough programme since 1928 
  • 1935> moved away from pacifism  in favour of armed support for League of Nations & resistance to Nazi Germany 1939
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Recovery of Labour

  • more support in the press -Daily Mirror  became pro-Labour 1938 & Labour Daily Herald  became as popular as Cons Daily Express
  • firm commitment to moderate, 'respectable' policies - no lurch to left 
  •  Elements of Labour movement expressed their admiration for socialist society they thought was being constructed in Stalin's Russia. 
  • the Socialist League formed. - Sir Stafford Cripps was regarded as 'champion of the left'.
  • vast majority of Labour movement remained committed to moderation and parliamentary democracy - Attlee's leadership & influence of unions - big part of 'National Council of Labour' 
  • Ernest Bevin anti-communist - prevent growth of communist influence. 
  • The Socialist League eventually dissolved itself 1937 
  • Cripps was expelled from party 1939 - tried to organise a broad alliance in opposition to Chamberlain's Appeasement policies 
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Recovery of Labour

  • Mainstream Labour opinion refused to make deal with communists & avoided taint of 'radicalism'.
  • The Labour leadership accepted J. M. Keynes' ideas about need for government to manage economy.
  • 1937 - 'Labour's Immediate Programme' set out plan for nationalisation of British industries
  • Labour remained out of government 1930s and National government continued to have overall majority. 
  • Labour's support strengthened in London & north of England and Scotland - only limited recovery from Depression. 
  • Did < well in prosperous areas & amongst MCs 
  • Recovery limited - consisted of winning back lost seats & votes 
  • 1940 - Labour was ready for government, but had to wait for WWI to prove it was worth electing.
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Formation of national government

  • Events of August 1931 led to great bitterness in Labour Party - controversy ever since
  • Shinwell was junior minister in MacDonald's 2nd Labour government
  • Snowden joined National government reluctantly but left when it abandoned Free Trade
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Alex Goldsmith


Alright - but all just from textbook! Would be good if you could get some more own knowledge with stats and evidence for potential points in an essay. But good if you're looking for the textbook condensed.

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