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{{Main|Second MacDonald ministry}}
With Liberal help again MacDonald became prime following the successful [[1929 United Kingdom general election|1929 election]]. There were some promising achievements in foreign policy, notably the [[Young Plan]] that seemed to resolve the issue of German reparations, and the [[London Naval Treaty]] of 1930 that limited submarine construction.<ref>Paul W. Doerr, ''British Foreign Policy, 1919–1939'' (1998) pp.106–107, 119–120.</ref> Some minor legislation was passed, notably a [[Housing Act 1930|noncontroversial expansion of new public housing]]. Overnight in October 1929 the world economy plunged into the [[Great Depression in the United Kingdom|Great Depression]], and no party had an answer as tax revenue plunged, unemployment doubled to 2.5 million (in late 1930), prices fell, and government spending on unemployment benefits soared. Conditions became much worse in 1931 as the banks became unable to loan the government enough to cover the growing deficit. In an era before Keynesian economics, the strong consensus among experts was for the government to balance its budget. <ref>Hugh Dalton, ''Principles of public finance'' (1954) p. 213–220 [https://archive.org/details/principlesofpubl0000dalt/page/213/mode/1up online]. </ref> Spending was cut again and again but MacDonald and his [[Chancellor of the Exchequer]] [[Philip Snowden, 1st Viscount Snowden|Philip Snowden]] argued that the only way to get an emergency loan from New York banks was to cut unemployment benefits by 10%. They pointed out that cost of food was down 15% and overall prices were down 10%. But in the cabinet most Labour members were vehemently opposed--they demanded new taxes on the rich instead. MacDonald gave up and on 23 August went to King [[George V]] and resigned the government. Unexpectedly the monarch insisted that the only patriotic solution was for MacDonald to stay and form an all-party "national government" with the Conservatives, which he did the next day. The Labour Party felt betrayed and expelled MacDonald and Snowden.
The new [[National Government (1931)|National Government, 1931–1935]] kept Macdonald and Snowden and two others, replacing the rest of the Laborites with Conservatives.
In the [[1935 United Kingdom general election|1935 election]], Labour recovered to 8.0 million votes (38 percent), and [[Clement Attlee]] became Minority Leader. The Party now had 154 seats but had minimal influence in Parliament. At the local level union leaders, led by [[Ernest Bevan]], successfully defeated Communist infiltration.<ref> Andrew Thorpe, ''Britain in the 1930s'' (1992) pp. 41–49.</ref> In foreign policy a strong pacifist element made it slow to support the government's rearmament program. As the threat from [[Nazi Germany]] escalated, the Party gradually abandoned its pacifist stance and came to support re-armament, largely due to the efforts of Bevin and [[Hugh Dalton]]. By 1937 they had persuaded the Party to oppose [[Neville Chamberlain]]'s policy of [[European foreign policy of the Chamberlain ministry|appeasement of Nazi Germany and Fascist Italy]].<ref>Pelling, ''A Short History of the Labour Party,'' pp. === Wartime coalition (1940–1945) ===
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