Baldwin and MacDonald were both men of moderation who had shifted their parties towards the centre ground of politics. They shared a loathing of Lloyd George and a determination to keep him out of Downing Street. They now formed a solid, centrist coalition, which aimed to insulate the country from political extremism at a time of economic and social turmoil. Yet they also insulated their government from innovative ideas on the left and the right, which might have improved the precarious economic situation. Labour proposed the nationalization of the banks, the transport system, the staple industries and land, while on the right the rising Tory Harold Macmillan advocated a planned economy. Lloyd George, meanwhile, continued to espouse a proto-Keynesian programme of public works. But Baldwin and MacDonald dismissed these radical suggestions.
Snowden’s budget of September 1931 drastically reduced government spending, cutting unemployment payments and public sector wages. It was opposed by 90 per cent of Labour MPs and the vast majority of union members, who were now irrevocably cut off from their former leaders. It was also attacked by civil service employees, 20,000 of whom organized a rally to protest against the government. The chancellor’s critics predicted his cuts would not restore confidence in either sterling or in the City, and they were right – foreign investors continued to sell the former and withdraw money from the latter. The Bank of England was now obliged to use large amounts of its gold to shore up sterling. To add to the sense of emergency, part of the navy went on strike in protest at the proposed 25 per cent cut to sailors’ wages.
On 21 September 1931, events forced the National Government to announce that no public sector pay cuts would exceed 10 per cent and Britain would leave the gold standard. Sterling was allowed to float freely against other currencies, and its value ceased to be linked to the amount of money the country possessed. It also meant that a government formed for the purpose of maintaining the gold standard had now abandoned it. ‘For me,’ wrote the novelist Alec Waugh, ‘as for most born before 1910, the announcement … was the biggest shock that we had known.’
But the sky did not fall, and nor did the economy. Sterling dropped by around 25 per cent in value, but then stabilized: it was weaker but steadier, and its steadiness revived investor confidence. Investors were also reassured by the presence of Baldwin and Chamberlain in the cabinet. Britain’s devalued currency, meanwhile, held out the promise of lower export prices and low interest rates, providing further cause for optimism. Going off the gold standard thus ended the currency crisis, where cutting unemployment benefit had had little or no positive effect. The bankers and the Treasury had been wrong all along, but the unemployed and the Labour government had paid the price.
In leaving the gold standard, the National Government lost its raison d’être, but gained a new one – to stabilize the new floating sterling. The Conservatives believed the currency could best be steadied by the introduction of a tariff programme; they demanded a general election, in order to secure a popular mandate for the policy. But they were happy to go to the country as part of a MacDonald-led National Government, since the king favoured its continuance. Besides, the Labour party would be isolated and vulnerable in its opposition to a cross-party coalition. ‘The insidious doctrines of class warfare cannot make headway against the general desire for national cooperation,’ Baldwin commented. ‘The great thing is to give socialism a really smashing defeat.’ Here was the real Tory agenda.
Yet MacDonald and the free-trade Liberals in the coalition were uncomfortable with the idea of promoting protectionism. The prime minister was also reluctant to campaign against the party he had helped to build. Nevertheless, Chamberlain correctly predicted that MacDonald would find the lure of power too strong to resist. Not even the cautionary tale provided by Lloyd George’s fall from the leadership of a national coalition in 1922 could dissuade MacDonald from agreeing. In any case, Labour left their former leader little choice but to join the National Government, as they expelled him from the party.
When a general election was called, the MacDonald splinter group, ‘National Labour’, broke away from the bulk of the Labour party. The Liberal party, meanwhile, was split three ways. The ‘Liberals’ were pro-coalition but anti-protection and the ‘National Liberals’ favoured both, while neither was palatable to Lloyd George’s ‘Independents’. Though the party-political situation was confusing, there was nothing unclear about the messages the Tories and Labour tried to communicate to the electorate. With the help of their friends in the press, the Conservatives blamed Labour for causing the economic crisis and claimed a new Labour government would give people’s savings to idlers on the dole. Labour, meanwhile, blamed the bankers for the crisis and vilified MacDonald, whose portrait at the party’s London offices was turned to face the wall. In response MacDonald and Snowden effectively bade farewell to Labour by describing its election programme as ‘Bolshevism run mad’.
MacDonald received his mandate, as the National Government won over 60 per cent of the vote and returned 521 MPs to the new parliament. The real victory, however, belonged to the Conservatives, who claimed 473 of the government’s seats. The vast majority of the middle classes, and over 50 per cent of the working class and the female electorate, had voted Tory. Baldwin had proved to his party that his dream of a property-owning democracy could be turned into a reality. He had also convinced many voters that a spendthrift ‘socialist’ government had caused the country’s economic malaise. Labour lost 235 seats and were reduced to a mere fifty-two MPs, an abysmal result that was probably also a judgement by some sections of the working class on the party’s poor record in office. On the other hand, their massive reduction in seats could also be attributed to the bias of the electoral system – the party’s share of the popular vote only decreased by 6 per cent. It was the middle classes, more than the workers, who had turned away from Labour. They also turned away from the Liberals, which was hardly surprising since the bulk now supported a Tory-dominated coalition. The election of 1931 marked the extinction of the great party of Gladstone and Lloyd George. For the rest of the century, it would be a simple fight between the Tories and Labour. And for the foreseeable future, there was no doubt which party would win. England was a Tory country of the south as opposed to the north, of the classes rather than of the masses.
Within the National Government the Liberals were now dispensable, while Snowden could be ignored. MacDonald was no longer even a figurehead but merely a cipher. Once more, there were clear parallels with the 1918 election, which gave Lloyd George office and the Conservatives power. Yet there was also an obvious difference: even fettered and outnumbered, Lloyd George had been an irrepressible and imperious leader; MacDonald, in contrast, was a spent force. The absence of dynamism at the heart of government would have devastating consequences for England, as would the lack of a substantial parliamentary opposition for the Tories. For the next eight or nine years the Conservatives would have everything their own way.
The Tories soon demonstrated their dominance in the coalition. Chamberlain, who replaced Snowden as chancellor, introduced a number of protectionist measures, despite the disapproval of some Liberals in the cabinet. At first he implemented import tariffs with the excuse of balancing trade; but then he did so more openly and paid tribute to his father, who had first espoused the protectionist cause. A general tariff of 10 per cent was imposed, while empire goods were exempted. The Tory’s grand design was a self-sufficient empire separated from the rest of the world by imperial preference, just as Chamberlain’s father had envisaged. The colonies and dominions would provide the ‘mother country’ with food and raw materials, as well as a market for its manufactured goods.