Britain 1929-51
(a)What is meant by ‘an international financial crisis’ in relation to the events of 1929-31? (3) Throughout the 1920’s in Britain there were economic problems. Unemployment was increasing; therefore there was low domestic demand and large amounts of poverty. Markets were also being lost abroad, leading to a decrease in trade. However in 1929-31 these problems reached crisis point, when in 1929 The Wall Street Crash called for an end of American Loans to Britain, and the re-call of all Britain’s debt. This had impact worldwide, as prices for goods slumped due to lack of demand and business confidence disappeared. In Britain it became clear that the ‘Laissez-faire’ policy was not going to work, but there was a divide in thoughts over which policy to adopt to deal with the crisis. Pressure built in 1930 as government spending rose to an all time high due to high unemployment, and defeat at the next general election looked likely. In 1931 the crisis in Britain reached its peak with the ‘run on the pound’ causing major change and unrest within the labour government to try to solve the crisis.
(b) Explain the reactions of the Labour Government to the proposals of the May Committee. (7) In July 1931 the May Committee reported a deficit of £120 million . It recommended a 20% cut in government spending in order to balance the budget. This proposal caused an 11-9 split within the labour government that made continuation as a government impossible. Although the Labour government was essentially a socialist party, Macdonald had always argued that since they were a government without a majority, they must act in a way that would reflect this, hence his and several other Labour MP’s wish to act in traditional fiscal policy by balancing the budget in ‘national interest’. The May Committee’s suggestion showed clearly this divide within the party, which forced Macdonald to offer the party’s resignation. He was, however convinced by King George V to remain as Prime Minister but as leader of a national coalition government. In order to prove that Labour was a national, responsible party, Macdonald was prepared to do this, as was Philip Snowden, Chancellor of the Exchequor. Snowden believed that the budget should remain balanced and Britain should remain on the gold standard. He therefore supported the May Committee’s proposal despite Labour’s working class stance. However Arthur Henderson the foreign secretary did not agree. Henderson was heavily influenced by the Trade Unions, and felt strongly that Labour should represent the working class, therefore he felt that if the budget had to be balanced by cutting unemployment pay and raising taxes it was better for Labour to leave office and leave such policies to the Conservatives or Liberals. This difference in opinion within the party led to its break up and the formation of a national government due largely to the proposals if the May Committee.
