OCR Specification focus:
‘The Second Labour government 1929–1931, economic problems, domestic policies, MacDonald as leader, Snowden as Chancellor’
The Second Labour Government of 1929–1931 was defined by fragile parliamentary strength, worsening economic problems, divisive domestic policies, and the eventual collapse during the Great Depression.
The Second Labour Government: Context and Composition
Labour returned to power in June 1929 after the general election, forming its second minority government. Though it was the largest party in the Commons with 287 seats, Labour remained dependent on Liberal support to govern, reflecting a fragile parliamentary foundation. Ramsay MacDonald resumed office as Prime Minister, while Philip Snowden became Chancellor of the Exchequer, reinforcing continuity with Labour’s earlier 1924 government.
MacDonald as Leader
MacDonald sought to present Labour as a responsible party of government, capable of defending national stability and economic prudence. He distanced the party from its radical grassroots and stressed moderation. His leadership style emphasised consensus-building, but in reality it often created tensions within his party, particularly between moderate reformers and left-wing critics.
Snowden as Chancellor
Snowden’s fiscal policy was orthodox and cautious, prioritising balanced budgets and sound finance over expansionist measures. He believed confidence in sterling was essential for Britain’s stability, and he resisted calls for inflationary spending. Snowden’s attachment to economic orthodoxy would later deepen divisions within Labour as the crisis intensified.
Economic Problems
Britain in 1929 was already facing structural economic weaknesses:
High unemployment persisted in staple industries such as coal, textiles, shipbuilding, and steel.
Regional disparities remained acute, with northern England, Scotland, and Wales suffering more than the south-east.
International trade imbalances exposed Britain to global economic fluctuations.
The onset of the Great Depression following the 1929 Wall Street Crash intensified these problems. Britain’s unemployment rose from 1.2 million in 1929 to over 2.5 million by 1931, creating a profound social and political challenge.
Long-run UK unemployment rates with the sharp uptick across 1929–1932 highlighted by the Great Depression. Use the chart to locate the 1930–1931 surge referenced in the notes. The figure covers 1881 to the present, so data beyond the 1918–1939 topic window is included for context. Source
Great Depression: A severe worldwide economic downturn beginning in 1929, characterised by falling production, financial instability, and mass unemployment.
Rising unemployment increased the burden on the unemployment insurance system, causing a fiscal crisis as benefits outstripped contributions. The pressure for retrenchment collided with Labour’s political commitment to social protection.
Domestic Policies
Despite economic pressures, Labour did attempt domestic reform, though ambitions were constrained by minority status and the worsening financial situation.
Social and Economic Measures
Unemployment Insurance Act (1930): Extended benefit provision, easing restrictions on eligibility (the “Anomalies Act” later tightened this again).
Housing initiatives: Measures were introduced to encourage slum clearance and improve workers’ housing, building on earlier efforts from the 1920s.
Agricultural marketing schemes: Steps taken to stabilise farming incomes, though limited in scope.
Trade Disputes and Labour Relations
Labour repealed the Trades Disputes Act (1927), which had curtailed union power after the General Strike, restoring rights to sympathetic strikes and union political funds. This reinforced Labour’s links to the trade union movement, although critics argued it risked alienating middle-class opinion.
Political Divisions and the Economic Crisis
By 1931, worsening economic conditions created a severe crisis of confidence in sterling, leading to pressure from international financiers for budget cuts. The May Committee Report (July 1931) recommended drastic reductions in public expenditure, including cuts to unemployment benefit.
Labour split bitterly over this issue:
MacDonald and Snowden supported cuts to maintain financial stability and defend sterling.
A large section of the Labour Party and trade unions resisted cuts, viewing them as a betrayal of working-class interests.
The deadlock culminated in August 1931, when MacDonald, unable to secure cabinet unity, resigned. At the request of King George V, he then formed a National Government with Conservatives and Liberals, prompting a profound rupture with Labour.
National Government: A coalition formed in 1931 including Conservatives, Liberals, and a small group of Labour politicians, established to address the financial crisis.
The majority of Labour denounced MacDonald as a traitor, while Snowden likewise aligned with the National Government. The Labour Party itself was reduced to a small opposition in Parliament.
Snowden’s Role as Chancellor
Snowden’s commitment to deflationary policy shaped the government’s response to crisis. He refused to devalue sterling or expand credit, fearing inflation and a loss of international confidence. His adherence to the Gold Standard tied Britain to rigid financial orthodoxy until September 1931, when the National Government abandoned it shortly after Labour’s fall from office.
Official Treasury press notice (20 September 1931) announcing temporary suspension of the Gold Standard Act’s gold convertibility. It illustrates the immediate policy response to sterling pressure in the crisis. The image is a high-resolution scan of the original notice. Source
Consequences of Snowden’s Policy
Short-term stability in government finances, but at the cost of worsening unemployment.
Deepened divisions within Labour between pragmatists and socialist reformers.
Created enduring debates over whether Labour had failed to offer a distinct alternative to Conservative economics.
Collapse and Aftermath
The collapse of the Second Labour Government marked a turning point:
Labour lost heavily in the 1931 election, reduced to 52 seats.
The Liberal Party fragmented, further altering the party system.
The Conservatives dominated the National Government, shaping British politics through the 1930s.
This episode highlighted the vulnerability of minority Labour governments to economic crises and the difficulties of reconciling social reform with financial orthodoxy in a global downturn.
FAQ
The Second Labour Government was a minority administration, and the support of the Liberals was crucial for passing legislation.
The Liberals under David Lloyd George often backed Labour on welfare and reformist policies, such as unemployment insurance extensions. However, they resisted more radical spending proposals, limiting Labour’s scope. Their willingness to withdraw support increased Labour’s vulnerability during the worsening economic crisis.
The May Committee, established to investigate public spending, recommended severe cuts to balance the budget.
Its proposals included reducing unemployment benefits, cutting teachers’ salaries, and slashing public sector pay. These recommendations deeply divided the Labour Cabinet, as many saw them as an attack on the working class during a time of mass unemployment. The report’s influence directly contributed to the collapse of the government.
Britain relied heavily on overseas investors to maintain confidence in sterling.
The fear of budget deficits and currency instability led foreign investors to withdraw gold reserves from the Bank of England.
This capital flight caused a rapid drain on gold and foreign currency reserves.
International pressure, particularly from New York and Paris bankers, forced MacDonald and Snowden to consider unpopular spending cuts to restore confidence.
Repealing the Act restored trade unions’ rights to sympathetic strikes and political funding, strengthening Labour’s ties with organised labour.
While popular with union members, the repeal alienated many middle-class voters and critics who feared renewed industrial unrest. This reform reinforced Labour’s image as a party beholden to trade union interests, limiting its broader electoral appeal during economic crisis.
Many working-class supporters felt betrayed when Labour leaders considered cuts to unemployment benefits. Trade unions in particular condemned MacDonald and Snowden for prioritising financial orthodoxy over social protection.
Conversely, sections of the middle class and business community welcomed the call for retrenchment, viewing it as necessary to maintain stability. The split in opinion reflected deepening social divisions and foreshadowed Labour’s electoral collapse in 1931.
Practice Questions
Question 1 (2 marks):
In which year did Ramsay MacDonald form the Second Labour Government?
Mark Scheme:
1 mark for identifying the correct year: 1929.
0 marks for any incorrect or vague responses.
(Total: 2 marks)
Question 2 (6 marks):
Explain two reasons why the Second Labour Government (1929–1931) faced serious economic difficulties.
Mark Scheme:
Up to 3 marks for each valid reason explained.
Possible points include:
Impact of the Great Depression (e.g. collapse of world trade after the 1929 Wall Street Crash, unemployment rising from 1.2 million in 1929 to over 2.5 million by 1931).
Structural weaknesses of the British economy (e.g. reliance on declining staple industries such as coal, steel, textiles, shipbuilding).
Pressure on unemployment insurance (e.g. costs of benefits outstripping contributions, creating fiscal strain).
Commitment to the Gold Standard and orthodox financial policy (e.g. Snowden’s refusal to devalue sterling or pursue expansionary spending).
Award marks as follows:
1–2 marks: Identifies one or two relevant factors with limited explanation.
3–4 marks: Offers developed explanation of at least one factor or partial development of two.
5–6 marks: Explains two reasons in clear detail, showing accurate contextual knowledge and logical connections to economic difficulties.
(Total: 6 marks)
