The economic and political crisis that rocked the UK 90 years ago - and the Edinburgh MP at the heart of it

Ninety years ago the UK was in crisis – an economic slump, unemployment soaring, and the government divided over proposed sweeping cuts in spending.

Thursday, 26th August 2021, 4:55 am

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The economy had not fully recovered from the First World War when the country was hit by the knock-on effect of the 1929 Wall Street crash, a dramatic fall in US stock prices send shockwaves around the world.

By August 1931, prime minister Ramsay MacDonald, at the head of a minority Labour government, was struggling to find ways to deal with the mounting problems.

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Prime Minister Ramsay MacDonald with the Chancellor Philip Snowden in Downing Street. Photo: Puttnam/Getty Images

The crisis would split his party and see him join forces with Tories and Liberals in a “National” government and being labelled a traitor by erstwhile supporters.

Alongside MacDonald was Chancellor Philip Snowden – they did not like each other, but were thrown together in their attempt to solve the situation.

But another key figure in the unfolding drama – and a rising star in the party – was the unassuming Edinburgh Central Labour MP Willie Graham, who had been Snowden's right-hand man as he battled to bring the economy under control but now became one of the leading figures on the other side of the argument.

Graham had been an Edinburgh councillor, representing the working class St Leonard's ward, before being elected MP in 1918. He served as a junior Treasury minister in the first Labour government in 1924 and when the party won again in 1929 he was promoted to the Cabinet as president of the board of trade.

A picture of Willie Graham from the Evening News in 1924

The day MPs broke up for their summer recess at the end of July, a committee appointed by the government and chaired by retired insurance company boss Sir George May, had published its report proposing tax rises and drastic spending cuts, including a 20 per cent reduction in the rate of unemployment benefit and big pay cuts for teachers, police and the armed forces.

Despite being the “baby” of the Cabinet, at 41, Willie Graham was one of the five senior ministers, including MacDonald, 64, and Snowden, 67, tasked with considering the May recommendations and reporting to Cabinet.

It quickly became clear the proposal to slash unemployment benefit would be the sticking point for a party born to promote the interests of the working class.

Foreign Secretary Arthur Henderson led the opposition to the benefit cut and he was joined by Willie Graham.

Ramsay MacDonald leads the new National Government in the grounds at No 10 Downing Street. Photo: Hulton Archive/Getty Images

As the crisis escalated leading politicians on all sides who had gone off on their holidays were summoned back to London.

The climax came towards the end of August as ministers began five days of intensive Cabinet meetings interspersed with urgent consultations with union leaders, talks with other party leaders and worried conversations with bankers.

The priority was to restore international confidence and prevent a run on gold and the devaluation of the pound.

The TUC opposed the cuts, urging a levy on profits and a tax on unearned income instead and even suggesting devaluation might not be so bad. But the Bank of England warned confidence in sterling required the budget to be balanced by a reduction in spending rather than an increase in taxes.

Another idea was the imposition of temporary tariffs on imported goods to raise revenue. Even ardent supporters of free trade, like Graham, were willing to consider it, but Snowden vetoed the move.

Despite the divided opinions, MacDonald was determined to try to find Cabinet agreement. He felt it was his duty to resolve the crisis. He also wanted to establish Labour – which had only held power once before – as a responsible party of government and was anxious it should not be seen to be running away from tough decisions.

Under pressure, the Cabinet signed up to the proposed pay cuts and also to making savings on unemployment benefits by increasing contributions and cutting the eligibility period – but reducing the benefit rate remained a step too far.

Eventually it became clear that agreement on a big enough package of cuts was impossible.

At a late-night meeting on Sunday August 23 the Cabinet voted 11-9 in favour of a 10 per cent cut in unemployment benefit. Graham voted against. But despite the narrow majority for the cut, it was clear those who opposed it would resign if it went ahead and the government would collapse.

MacDonald went to Buckingham Palace the next day to hand in his resignation. An election could was not feasible in the middle of a crisis. The King, George V, was eager for MacDonald – who was popular with the public – to remain as prime minister; and Tory leader Stanley Baldwin and Liberal Herbert Samuel, standing in for the ailing Lloyd George, were both willing to serve in an emergency government under the Labour leader.

So after some agonising MacDonald agreed to lead a National government with a Cabinet made up of himself, Snowden, four Tories and two Liberals.

It was described as a combination of individuals rather than a coalition of parties and those involved insisted it would be a strictly temporary arrangement to deal with the immediate crisis, then there would be an election fought on the normal party basis.

Labour ministers and MPs were dismayed. Only a handful of them joined MacDonald and Snowden and the rest of the party became the main opposition with Henderson as leader and Graham one of two deputies.

MacDonald spoke of returning to the party once the crisis was resolved, but Labour MPs were bitter over his actions. He was accused of betrayal and expelled.

The new government implemented the 10 per cent cut in the unemployment rate, along with pay cuts. But the crisis worsened and in mid-September it was decided abandon the gold standard, effectively devaluing the pound – the very outcome everyone had been trying to avoid.

Despite the assurances the next election would be fought on normal party lines, by October the government had decided it needed a mandate to carry on its work and it asked to be re-elected as a National government with a free hand to do what it decided was necessary. This “doctor’s mandate” allowed the government parties to maintain some unity despite big policy differences on how to tackle the continuing crisis – the Tories wanted to introduce tariffs while the Liberals argued for free trade.

The campaign was marked by bitter claim and counter-claim between the two sides of the former Labour government about who had said what in the Cabinet meetings which failed to agree on cuts. Despite their previous good relationship – likened by some to a father and son – Snowden attacked Graham in particular.

But Graham insisted at one election meeting: “This is a powerful and wealthy nation and if we use our resources aright there is no need whatever unjustly to treat any unemployed man or woman.”

And he defended the idea of a "super-tax" which he described as “an increased call upon the people of undeniable wealth”.

Radio broadcasts played a major part in the campaign and Snowden gave one for the government, in which he attacked his former colleagues’ programme as “Bolshevism run mad”. He was not seeking re-election himself but took time to send messages of support to selected candidates, including one to James Guy. Willie Graham’s Unionist opponent in Edinburgh Central.

Graham had to miss the election count after his father died suddenly in London, but he lost his seat, his share of the vote plummeting from 59 per cent to 36 per cent.

The election was a disaster for Labour – the party was reduced from 288 MPs to just 52 and began a painful period in the wilderness.

But a new set of leaders gradually emerged, including Clement Attlee, who would go on to win the 1945 election and set up the NHS and the welfare state.

Sadly Willie Graham was not part of the new-generation Labour leadership. He died of pneumonia, aged 44, just ten weeks after the election. Obituaries praised his ability, sincerity and modesty, called him “a genius with figures” and predicted he would have become Chancellor.

At the funeral there was a floral tribute from Ramsay MacDonald with the inscription “In affectionate remembrance”.

And even Snowden put aside his bitterness and issued a tribute, describing Graham as “a lovable and generous spirit”. He continued: “It is a terrible tragedy that he has passed away in the prime of life and that his great knowledge and ability should be lost to the state.”

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