Labour history uncut: Splitters! The fall of the second Labour government

by Pete Goddard and Atul Hatwal

Panic gripped the Bank of England.

By the 7th August 1931, just a week after the publication of the doom-laden May report on Britain’s finances, unhappy foreign investors were selling sterling at a record pace.

The Bank of England reported that its gold and foreign exchange reserves had lost £60m in the past few weeks in its attempt to prop up the value of the nation’s currency and keep Britain on the gold standard.

A first-ever Brexit seemed imminent. Although nobody actually used the word “Brexit” because these were more civilised times.

Only a hastily arranged £50m credit from French and American bankers was keeping the Bank of England solvent. This wouldn’t last long and future loans were in doubt – it’s hard to take a payday loan when you’ve got no payday in sight.

In order to secure more international loans to sustain the currency, a plan to pay down the deficit was needed.

Governor of the bank of England, Montagu Norman talks to Ramsay Macdonald who has chosen, appropriately, to dress as an undertaker for the occasion

The bankers wanted £80m of cuts. So prime minister Ramsay Macdonald and chancellor Philip Snowden put together a programme to deliver them, including a painful reduction of over £40m to unemployment benefit.

But should the bankers have been telling a Labour government what to do?

Of course not – that’s what the TUC was for. On August 20th 1931 Walter Citrine and Ernest Bevin refused to back the cuts saying they would destroy the Labour movement.

In preparation for his next meeting with Macdonald, Ernest Bevin practices his ‘I’m very disappointed in you’ look

This alarmed foreign secretary Arthur Henderson. He’d devoted his life to holding the constantly-bickering Labour movement together like human Sellotape. With its dire warnings the TUC had found his annoyingly invisible end bit and Henderson switched sides from supporting to opposing the cuts.

Macdonald seethed. In the end, he could only get the Labour cabinet to agree to about £60m of cuts. Less than the “bankers ramp”, but still significant.

Problem was, as a minority government, Macdonald still needed some support from the other parties to pass this compromise programme.

The Tories weren’t playing ball. For them, the cuts were nowhere near deep enough and, while they were at it, failed to include a clause giving them the right, whenever they wanted, to punch a pauper in the face.

They refused to support the compromise.

Time was running out. The choice was now stark: either the full cuts were made and the loans secured, or the Bank of England would run out of money and Britain’s credit would crash.

For Macdonald this would not only destroy Labour’s economic reputation it would potentially cast Britain into a 1920s style hyper-inflation. Yet with the Labour cabinet divided, he simply could not deliver the full programme of cuts.

On the morning of August 24th, out of options, Ramsay Macdonald gave up. He put on his best “meeting the king” cardigan, said toodle-pip to the cabinet for what seemed the last time as prime minister. He headed off to quit.

Can we get away with the undertaker joke again?

It didn’t go quite as planned.

“I resign, your highness,” he said.

“But you’re a good prime minister,” replied the regent.

“Oh? Do you think so? Do you really think I’m a great prime minister.”

“Sure. How can we possibly run a country without you?”

“Good question. Of course, it’s really not my place to say who is the best prime minister ever, but if people are saying that … and if you really need me.”

“We do. We need a national government to get through this crisis. And you are the one to lead it.”

“I am aren’t I?”

And just like that, Macdonald didn’t resign.

Instead he agreed to form a national government with, surprise, surprise, himself as prime minister.

At noon on the 24th Macdonald returned to cabinet and announced that there was to be a new national government with an old prime minister.

“Good news everyone. I’m still prime minister.”

“Great. So we’re still a Labour government.”


“But we’ve still got cabinet jobs.”


“But we can keep our promotional coffee mugs.”


As the surprised and bemused now ex-cabinet shuffled out, Macdonald asked Philip Snowden, Jimmy Thomas and Lord Sankey to wait behind.

Not quite time for the ministerial P45 for these three, Macdonald asked them to join the national government. They said yes. Well, unemployment insurance was about to be cut wasn’t it?

At 2:30, Macdonald then met with Labour’s outgoing junior ministers. He announced that he was “committing political suicide,” an act he recorded sensitively in his diary that he would commit “as happily as an ancient Jap.”

Macdonald said he would not ask any of the junior ranks to follow him, and then mentioned in passing that it would be really, really nice if some of them were to follow him.

He advised any of these political lemmings to write to him individually. Imagine his surprise then when his post bag remained entirely empty.

Turns out junior ministers are not quite as daft as senior ministers think.

And that was that. On August 24th the Labour party discovered that not only were they out of power, three of their most senior leaders were going to be sitting on the other side and they would be fighting biggest and broadest coalition assembled outside of wartime.

This wasn’t going to be pretty.

Pete and Atul are not historians

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3 Responses to “Labour history uncut: Splitters! The fall of the second Labour government”

  1. I guess Labour are the black sheep of the family. As much as I don’t like the Conservatives I still feel they will do more justice to the country.

  2. swatantra says:

    Bl***dy B**kers!. The first time that a Labour Govt walked away from a Crisis?

  3. swatantra says:

    … and lets hope, the last.

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