Grand Coalition/Second MacDonald Ministry (1930-1934)
The Doctor's Mandate: The Grand Coalition Responds to the Great Depression, 1930-34
MacDonald immediately offered his resignation to the King but found it refused. Instead, George V, who believed that an election would only cause further uncertainty, urged him to see what kind of majority he could construct. After discussions with his own MPs had reached an impasse, MacDonald turned to the Liberals and Conservatives. Although neither Simon or Baldwin (the Liberal and Conservative leaders, respectively) had whipped their MPs to vote for the emergency budget because they did not feel that they could politically prop up a failed Labour government, they were sympathetic to MacDonald’s deflationary aims and had privately urged their MPs to vote with Snowden’s programme. As it was, many of their MPs had voted for the budget and both could say to MacDonald, with some plausibility, that they could bring their MPs in line behind an emergency budget on substantially the same basis as September 1930, on the condition that they were rewarded with ministerial posts. MacDonald was nervous about this proposal but, convinced by the direness of the fiscal situation, agreed to sound out his loyalists. Eventually he managed to convince 36 MPs to come with him and the so-called ‘Grand Coalition’ was formed in October 1930.
A brief breakdown of the parties involved in the Grand Coalition
The reasons for the choices made by 36 Labour MPs who chose to stick with MacDonald remain something of a mystery. While many of them belonged to the right of the party, many (notably Snowden) had begun their careers firmly in the utopian socialist camp. Similarly, there was no obvious class dimension to the choices: while the Earl de la Warr chose to go with MacDonald, other upper class Labour MPs and peers like Harold Nicholson and Lord Westminster stayed with the official Labour Party (indeed, in 1930 Lord Westminster donated Grosvenor House to Labour to act as their new headquarters); similarly, working class trades unionist MPs appeared in both MacDonald’s National Labour (James Henry Thomas) and Henderson’s Labour (J.R. Clynes).
When the emergency budget returned to the Commons in October 1930, John Maynard Keynes organised a rebellion of 33 Liberal MPs but this did not prove to be enough to stop the Grand Coalition passing their budget with relative ease. The budget instituted a cut in welfare payments and for all government workers, along with a suite of tax rises. However, although these cuts went some way to calming the financial markets, they did nothing to stem the rise in unemployment and poverty, which were soon approaching figures closer to the beginning of the Edwardian Period. In 1931 and 1932, the government announced a series of further welfare cuts to be made on the recommendation of the Geddes Commission, a notionally independent (but, in practice, made up of Grand Coalition loyalists chaired by Sir Eric Geddes) committee to look into government spending. The so-called ‘Geddes Axe’ became a widespread metaphor for the government as a whole and the Conservatives in particular (Geddes was a Conservative MP and the party was known to be most enthusiastically in favour of fiscal retrenchment).
However, the various cuts could not, because of the level of unemployment, produce a completely balanced budget and so therefore failed to stem speculative attacks on the pound, which were driven by concerns about the underlying health of the British banking industry and depletion of British gold reserves. Eventually, the independent MacMillan Report appeared in November 1932, recommending suspending the pound’s participation in the gold standard and a managed float of the currency. Although Snowden was initially reluctant to abandon gold (it was, after all, one of the main reasons behind the formation of the Grand Coalition) but eventually consented to doing so in the budget of March 1933. Despite initial concerns about inflation, these fears were allayed by an increase in the Bank of England’s base rate. This increase, combined with a carefully managed exchange rate float, gave a boost to British exports without putting stress on international finance or the politics of the Commonwealth and the Empire.
However, while the Grand Coalition had, on its own terms, governed the country reasonably well in a fiscal sense (the way that the suspension of the gold standard was handled, in particular, has been well regarded by economic historians), the same could not be said of the political context. Although unemployment had dropped from its peak of around 20% of the workforce in the middle of 1931, it remained stubbornly high especially across areas of heavy industry. The recovery which was edging into existence following the suspension of the gold standard was not proceeding fast enough to replace the Geddes Axe. The widespread poverty and the impression that the Grand Coalition didn’t care about its citizens threatened to completely break down the Edwardian class and political settlement, in which people had accepted a degree of class-based inequality in return for the vote, a liberal (and often Liberal) and paternalistic welfare state and increasing standards of living.
A particular target for protestors were the Romanov family, who, since their exile from Russia in 1918, had been living a quiet life in Anmer Hall in Norfolk. In 1932, the former Tsar and Tsarina were jostled on their way to the cinema and, a year later, protestors booed and disrupted proceedings at the funeral of their son, Alexei. Meanwhile, members of the TUC were becoming more and more militant, slowly slipping out of Bevin’s control. They shifted their demands away from the corporatism proposed by Bevin and the rest of the Labour party and towards direct confrontation.
At the same time, the Grand Coalition was coming apart at the seams as pressure was put on the internal politics of the Liberals by the return to prominence of David Lloyd George. He had continued to be a party grandee since he had left Downing Street and was even invited to join the Grand Coalition in 1930, but was prevented by ill health. As such, internal opposition to the government’s policies largely devolved to Keynes and his clique, who urged a more expansionary fiscal policy but lacked the big names to challenge the government. When Lloyd George returned to health in late 1933, however, this changed. Together, he and Keynes authored the pamphlet ‘We Can Conquer Unemployment’ in January 1934, setting out their economic plans modelled on the ‘New Deal’ programme being pursued by the American government at the time.
With the trades unions becoming increasingly militant and cracks emerging in the Grand Coalition, 1934 promised to be another year where events moved very quickly.
MacDonald immediately offered his resignation to the King but found it refused. Instead, George V, who believed that an election would only cause further uncertainty, urged him to see what kind of majority he could construct. After discussions with his own MPs had reached an impasse, MacDonald turned to the Liberals and Conservatives. Although neither Simon or Baldwin (the Liberal and Conservative leaders, respectively) had whipped their MPs to vote for the emergency budget because they did not feel that they could politically prop up a failed Labour government, they were sympathetic to MacDonald’s deflationary aims and had privately urged their MPs to vote with Snowden’s programme. As it was, many of their MPs had voted for the budget and both could say to MacDonald, with some plausibility, that they could bring their MPs in line behind an emergency budget on substantially the same basis as September 1930, on the condition that they were rewarded with ministerial posts. MacDonald was nervous about this proposal but, convinced by the direness of the fiscal situation, agreed to sound out his loyalists. Eventually he managed to convince 36 MPs to come with him and the so-called ‘Grand Coalition’ was formed in October 1930.
A brief breakdown of the parties involved in the Grand Coalition
The reasons for the choices made by 36 Labour MPs who chose to stick with MacDonald remain something of a mystery. While many of them belonged to the right of the party, many (notably Snowden) had begun their careers firmly in the utopian socialist camp. Similarly, there was no obvious class dimension to the choices: while the Earl de la Warr chose to go with MacDonald, other upper class Labour MPs and peers like Harold Nicholson and Lord Westminster stayed with the official Labour Party (indeed, in 1930 Lord Westminster donated Grosvenor House to Labour to act as their new headquarters); similarly, working class trades unionist MPs appeared in both MacDonald’s National Labour (James Henry Thomas) and Henderson’s Labour (J.R. Clynes).
When the emergency budget returned to the Commons in October 1930, John Maynard Keynes organised a rebellion of 33 Liberal MPs but this did not prove to be enough to stop the Grand Coalition passing their budget with relative ease. The budget instituted a cut in welfare payments and for all government workers, along with a suite of tax rises. However, although these cuts went some way to calming the financial markets, they did nothing to stem the rise in unemployment and poverty, which were soon approaching figures closer to the beginning of the Edwardian Period. In 1931 and 1932, the government announced a series of further welfare cuts to be made on the recommendation of the Geddes Commission, a notionally independent (but, in practice, made up of Grand Coalition loyalists chaired by Sir Eric Geddes) committee to look into government spending. The so-called ‘Geddes Axe’ became a widespread metaphor for the government as a whole and the Conservatives in particular (Geddes was a Conservative MP and the party was known to be most enthusiastically in favour of fiscal retrenchment).
However, the various cuts could not, because of the level of unemployment, produce a completely balanced budget and so therefore failed to stem speculative attacks on the pound, which were driven by concerns about the underlying health of the British banking industry and depletion of British gold reserves. Eventually, the independent MacMillan Report appeared in November 1932, recommending suspending the pound’s participation in the gold standard and a managed float of the currency. Although Snowden was initially reluctant to abandon gold (it was, after all, one of the main reasons behind the formation of the Grand Coalition) but eventually consented to doing so in the budget of March 1933. Despite initial concerns about inflation, these fears were allayed by an increase in the Bank of England’s base rate. This increase, combined with a carefully managed exchange rate float, gave a boost to British exports without putting stress on international finance or the politics of the Commonwealth and the Empire.
However, while the Grand Coalition had, on its own terms, governed the country reasonably well in a fiscal sense (the way that the suspension of the gold standard was handled, in particular, has been well regarded by economic historians), the same could not be said of the political context. Although unemployment had dropped from its peak of around 20% of the workforce in the middle of 1931, it remained stubbornly high especially across areas of heavy industry. The recovery which was edging into existence following the suspension of the gold standard was not proceeding fast enough to replace the Geddes Axe. The widespread poverty and the impression that the Grand Coalition didn’t care about its citizens threatened to completely break down the Edwardian class and political settlement, in which people had accepted a degree of class-based inequality in return for the vote, a liberal (and often Liberal) and paternalistic welfare state and increasing standards of living.
A particular target for protestors were the Romanov family, who, since their exile from Russia in 1918, had been living a quiet life in Anmer Hall in Norfolk. In 1932, the former Tsar and Tsarina were jostled on their way to the cinema and, a year later, protestors booed and disrupted proceedings at the funeral of their son, Alexei. Meanwhile, members of the TUC were becoming more and more militant, slowly slipping out of Bevin’s control. They shifted their demands away from the corporatism proposed by Bevin and the rest of the Labour party and towards direct confrontation.
At the same time, the Grand Coalition was coming apart at the seams as pressure was put on the internal politics of the Liberals by the return to prominence of David Lloyd George. He had continued to be a party grandee since he had left Downing Street and was even invited to join the Grand Coalition in 1930, but was prevented by ill health. As such, internal opposition to the government’s policies largely devolved to Keynes and his clique, who urged a more expansionary fiscal policy but lacked the big names to challenge the government. When Lloyd George returned to health in late 1933, however, this changed. Together, he and Keynes authored the pamphlet ‘We Can Conquer Unemployment’ in January 1934, setting out their economic plans modelled on the ‘New Deal’ programme being pursued by the American government at the time.
With the trades unions becoming increasingly militant and cracks emerging in the Grand Coalition, 1934 promised to be another year where events moved very quickly.
