A changing political landscape, 1929-31

1929 Election

• Baldwin called a general election in March 1929.

• Conservatives won the largest share of the vote, but not enough seats for a majority (Table 4).

• MacDonald returned as PM, but his minority government was too weak to withstand the economic crisis that followed later in 1929.

Social Reforms Under MacDonald (1929–31)

• 1930 Housing Act: cleared 750,000 slum houses, replaced with modern homes by 1939.

• Coal Mines Act (1930): aimed to improve pay and efficiency, but weak legislation allowed mine owners to ignore it.

• Unemployment Insurance Act (amended):

  • Allowed public works schemes to reduce unemployment.

  • Funded with £25 million.

• Reform programme limited by the worsening economic crisis, which MacDonald called an “economic blizzard.”

Economic Crisis of 1931

Rumours of an Unbalanced Budget

• Summer 1931: rumours that the budget would be unbalanced, requiring more borrowing.

• American banks began panic‑selling the pound, causing its value to slump.

Government Response

• To reassure international financiers, the government proposed:

  • Spending cuts

  • Tax increases

  • Most controversially: a 10% cut in unemployment assistance

• Intended to stabilise the pound but caused hardship for the poorest.

Split in Labour

• Proposed cuts split the Labour Party and MacDonald’s cabinet.

• Government resigned on 24 August 1931.

MacDonald and the American Banks

Why the Banks Had Power

• Britain had borrowed heavily from the USA during WWI.

• American banks held large currency reserves of the pound.

• If they sold these reserves quickly, the pound’s value would collapse.

Bank Pressure

• Banks opposed high government spending because:

  • It required tax rises or borrowing.

  • Both would reduce the value of the pound.

  • A falling pound would force a change to the Gold Standard.

• As unemployment rose, banks still resisted welfare spending, fearing currency instability.