Britain between the wars

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Tutor Marked Assignment F

a) What would you say precipitated the formation of the National Government in August 1931?

In 1929, the Labour Party took office with Ramsay MacDonald as Prime Minister and Philip Snowden as the Chancellor of the Exchequer. Unfortunately for them, during this same time the Great Depression began with the Wall Street Crash in October.

The effects of the world economic crisis on Britain was serious enough; unemployment was already standing at over a million when the Labour government took office but by December 1930 it had shot up to 2.5 million, and in the depths of the depression in 1932, exports had fallen by a third from the 1928 figure, and unemployment had passed the three million mark, this was about 23% of the insured workers.

Labour Party attitudes, and in particular MacDonald’s were not overly sympathetic to the problems of unemployment. He maintained a Victorian belief in the virtue of hard work. Socialism played little part in policy initiatives. There was no shortage of advice to try to reduce unemployment; economic radicals among both Labour and Liberal supporters like J.M Keynes proposed that government should create jobs by spending money but was resisted by Snowden. Sir Oswald Mosley (Labour’s Chancellor of the Duchy of Lancaster) produced a plan what became known as the Mosley Memorandum but was rejected. The National Economic Advisory Council (NEAC) formed in 1930 by the Labour Government proposed Protectionism as opposed to Free trade as a practical solution but was blocked by Snowden.  Macdonald and Snowden were far too cautious and ignored all advice and stuck to the orthodox way of cutting expenditure as much as possible.

Payment for unemployment benefits was placing a severe strain on the government’s finances with nothing to show for it. A committee was appointed under Sir George May to investigate national expenditure; its report forecasted that by April 1932 there would be a budget deficit of £120 million. To stave off the crisis it proposed a general reduction of salaries in public sector jobs and unemployment benefits should be cut by 20%.

The May report led foreign bankers to the conclusion that Britain must be on the verge of bankruptcy and they rushed to withdraw gold plunging the country into a deeper financial crisis. The Bank of England informed the government that immediate finances were needed to restore confidence in sterling. Snowden requested for loans from American and French bankers. Loans will only be granted on the grounds of cutting unemployment benefits by 10%. The May Committee report had to be followed if financial aid was to be made accessible.

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The ministers were hopelessly split over the benefits cut. The TUC denounced the cuts in benefits and public sector pay to affect teachers, police officers and servicemen. After a fierce argument in the cabinet; to placate the opposition party and the Bank of England, the cut in benefit was approved, but only by 11 votes to 9.

MacDonald claimed that the minority was too large for the government to continue, there was nothing else for it but to resign. He then, under the king’s commission formed a coalition party consisting of Conservatives, Liberals and only three other Labour ...

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