Why was a National Government formed in 1931?

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Why was a National Government formed in 1931?

In 1931, Ramsay MacDonald accepted the King's proposition to form a National Government. After the Wall Street Crash, in October 1929, Britain, along with much of the world, fell into a deep recession. In the aftermath of the crash, the Great Depression ensued and led to the European Banking Crisis (1931) in which a number of Swiss banks went bankrupt. This started a dramatic withdrawal of funds from the Bank of England. The May committee headed by Sir George May, secretary of the Prudential Insurance Company predicted a budget deficit of £120 million and called for government economies amounting to £96 million, including a major cut (10%) in unemployment benefit. MacDonald and much of his cabinet accepted that cuts were necessary to balance the budget, as they need to secure loans from banks in New York and Paris. This led to a division in the Labour Party; many opposed the proposed cuts to unemployment benefit as they would affect the most vulnerable in society and go against everything Labour stood for. 

On 12th August, the members of the Cabinet Economy Committee, including MacDonald, Henderson, J.H Thomas and Philip Snowden, met to consider what to do…

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