On 24 August 1931, Prime Minister Ramsay MacDonald formed a National Government in response to the severe financial instability and rising unemployment triggered by the Great Depression. Facing a critical budgetary deficit and a run on the pound, the Labour administration found itself deeply divided over proposed cuts to public expenditure, including unemployment benefits. Seeking to restore international confidence in the British economy, MacDonald broke with his party to lead a cross-party coalition that included members of the Conservative and Liberal parties.

The formation of this coalition was a seismic event in British politics, effectively ending the existing party structure and leading to the expulsion of MacDonald and his supporters from the Labour Party. The new government was tasked with implementing rigorous austerity measures, most notably the National Economy Act 1931, which introduced significant reductions in government spending. This political realignment fundamentally altered the landscape of the 1930s, as the National Government secured a landslide victory in the subsequent general election held in October 1931.

The legacy of this period was defined by the following developments:

• The collapse of the minority Labour government due to internal disagreements over economic policy.
• The creation of a broad coalition intended to manage the national financial crisis through consensus.
• The marginalisation of the official Labour opposition for the remainder of the decade.
• The implementation of controversial fiscal policies aimed at balancing the national budget.
• A long-term shift in the balance of power within the House of Commons.

By prioritising national stability over traditional party loyalties, the National Government established a new model of governance that would persist throughout the interwar years. While the move stabilised the currency and addressed immediate fiscal pressures, it remained a point of significant contention, symbolising the profound social and economic anxieties that characterised Interwar Britain.