By the rules of the Labour Party, if the Leader resigns with immediate effect or is somehow incapacitated, the reins fall to the Deputy Leader until such time as a proper leadership contest can be held. In 1986, the Deputy Leader of the Labour Party was Frank Dobson, a York-born economist and staunch ally of Benn's who had few ties to either the left or the right of the party. This proved an asset in the years to come, as the so-called “Wars of the Roses” consumed Britain's natural governing party. The unions found him a man of principle who could be bargained with, and David Owen saw him as an ally in the economic field (which he may or may not have been – in any case, Owen's policies were continued under his reign). The leadership contest saw no other candidates stand against him, and he was acclaimed as leader by a unanimous PLP.
Dobson's course was not significantly different from Benn's, except insofar as his was a slightly more hands-off style – cynics, especially left-leaning ones, would claim that David Owen was the
actual Prime Minister for most of this period. The experiments with third-way politics continued, as the market was further liberalised and several state-owned industries shut their doors or were privatised. There were those who grumbled, to be sure, but on the whole the rising economic well-being of the country meant that the reforms were greeted warmly – Britain was being brought into step with the times, so the most common narrative went. The nation was transformed from the ground up, as the industrial sector grew smaller and the service and financial sectors grew larger by the day. Suddenly it seemed everyone (at least everyone in London) was either a City stockbroker or wanted to be one – finance was chic for the first time in a very long time. Money was cool, and the dominant cultural voices preached self-actualisation in place of the emphasis placed on solidarity during the 70s.
Not everyone would have this, however. Jimmy Reid and the TUC continued to take potshots at Chancellor Owen for his “betrayal” of the party, and Owen would respond that the union officials needed to get in step with the times. The mudslinging contest grew worse and worse over 1987 and 1988, with a
Daily Express journalist dubbing it “the Wars of the Roses” inspired by Labour's newly-adopted symbol. Ultimately, however, it was scarcely a conflict – in terms of government influence, Owen and his faction retained primacy throughout. By 1989, an increasingly deregulated economy began to reach stagnation, with the state actually running a surplus as a result of the still strongly progressive tax structure. Inflation began to become a problem, and it was clear that if no major action was taken, a recession would hit within a year or two.
So the government called the TUC and CBI to a meeting to discuss potential remedies. The main proposals were for a two-year wage freeze for workers alongside a freeze on stock market dividends, in order to keep inflation from spiralling out of control. The TUC was initially hesitant toward the proposals, but after some negotiation agreed to back them publicly. Dobson and Owen staked their credibility on the proposals, labelling the bill that entered the House of Commons a confidence matter – however, they had not counted on the rebellion of a number of left-wing Labour backbenchers, which caused the bill to be narrowly defeated. Dobson saw no choice but to tender his resignation, which was granted by the Queen. But no alternate government could be found – Paddy Ashdown and Norman Tebbit saw eye to eye on precious few matters, and even if they might've been able to patch a government together, it wouldn't have been able to gain the confidence of the House with a majority against it. Speculation had it that an early election would be called, but for whatever reason this did not occur.
So it was that mere days after resigning as Prime Minister, Frank Dobson returned to Number 10 at the head of a reformed Labour Government – however, this time David Owen was not part of it. It has been disputed whether he retired of his own free will or was forced out as part of an agreement with the Communists to back the new government, but whatever was true, the bogeyman of the Labour left was now gone. This is not to say that the new government would be a particularly socialist-minded one – rather than deal with the left of his own party, Dobson struck a budget deal with the Liberals that preserved much of the content of the original agreement, leading to the resignation of a number of left-leaning cabinet ministers – however, the government would remain until the elections, which were to be held on schedule in February of 1991.
The 1991 general election campaign proved an eventful one, and was marked by the emergence of a number of new political forces. Firstly, the Liberals and Nationals had agreed to a united front in the election campaign, with the tacit understanding that they'd form a government together should Labour be defeated. The Centre announced their willingness to cooperate with both parties, and so it was that a unified alternative could be presented to the voters for the first time since 1955. And the left was less united than it'd ever been since the 1930s, as a group of left-wing Labourites launched a new party, the Worker's Alternative, which petered out before the election but still took a significant amount of momentum away from the Labour campaign. And then there was James Goldsmith, who announced in mid-1990 the launch of New Democracy, a right-wing populist party that promised massive tax cuts and reductions in bureaucracy, along with a tough stance on crime and immigration.
These forces combined to ensure that Labour would get its worst result in memory, as the party's voteshare dropped below 40% for the first time since the war. The change of government was a good deal cleaner than in 1978, as the anti-socialist parties had an agreed joint programme and Prime Minister-designate. Dobson left Number 10, but not the party leadership, as Labour entered opposition once more.