Lloyd George & The People’s Budget

1. Lloyd George & The People’s Budget Related Reading: • McLean, Ch. 5 & 6 introduce you to Chamberlain, Lloyd George, and broad politics of period. • Jenkins, Roy. 1954. Mr. Balfour’ Poodle. London: Heineman • Blewett, Norman. 1972. The Peers, the Parties and the People. Toronto: U of T Press.

2. Lloyd George & The People’s Budget The Re-alignment of 1885 -86 • Salisbury’s gamble pays off: the ‘villa vote’ is more Conservative than the politicians realized • Chamberlain’s populist rhetoric makes middle-class Liberals jittery (“Three acres & a cow!”) • Gladstone’s policies are either unwelcome or rejected outright: • Tee-totaling • Irish Home Rule • Home Rule is the clincher: 1886 election sees Liberals wiped out in Ireland and lose 143 seats in Great Britain • Liberals split; Liberal-Unionists (led by Chamberlain) fuse with Conservatives into the Unionist Party

3. The Parties’ Predicaments • Twenty years of Conservative / Unionist domination end in 1905-6 • Education Bill debacle • Mismanagement of Boer War • ‘The cheap loaf’ – re-imposition of Corn Duty in 1902 to provide war revenue • Chamberlain’s agitation ‘inside’ party for Imperial Preference • Liberals’ landslide victory of 1906: • Victory masks fundamental weakness of Liberal’s position

4. The Liberal’s Predicament • Alliance with Irish Nationalists is constraining • Irish Question internally divisive (Home Rule Crisis, 1886) • Reliance on vagaries of SMP electoral system • Class dividing the Liberal’s urban social base • Liberals challenged on left by Labour; an unstable bargain: “…the greatest danger to the Liberals will arise from a split between Liberalism and Labour, such as destroyed liberalism in Germany and elsewhere.” (McLean, 1999, 158)

5. The Strategic Prescription • Liberal’s need to: • Widen party’s social & intellectual base • Incorporate Labour position and support • Get rid of Irish Question (i.e., make politics uni-dimensional) • Curb House of Lords • Note 1-3 are closely related strategies.

6. The Conservative Blockade • The difficulty: the Conservatives use the Lords to undermine the Liberal government: “When the Conservative Party is in power there is practically no House of Lords: it takes whatever the Conservative Government brings it from the House of Commons without question or dispute ; but the moment a Liberal Government is formed, this harmless body assumes an active life, and its activity is entirely exercised in opposition to the Government.” (Lord Rosebery, quoted in Jenkins 1954, 17)

7. Balfour’s Analysis of the Situation • Exercise of Lord’s veto is not straightforward • Balfour (the Unionist Common’s leader) wrote to Lansdowne (the Unionist leader in the Lords) that, “I conjecture that the (Liberal) Government methods of carrying on their legislative work will be this: they will bring in Bills in a much more extreme form than the moderate members of their Cabinet probably approve: the moderate members will trust to the House of Lords cutting out or modifying the most outrageous provisions: the left Wing of the Cabinet, on the other hand, while looking forward to the same result, will be consoled for the anticipated mutilation of their measures by the reflection that they will be gradually accumulating a case against the Upper House, and that they will be able to appeal at the next election for a mandate to modify its constitution (i.e., the make-up of the House of Lords)”

8. Balfour’s Analysis of the Situation Balfour (i.e. Unionist Commons’ Position) Median Lord (Unionist) Moderate Liberal Cabinet Minister Median Labour MP Extreme Liberal Cabinet Minister Cabinet Median Midpoint between Balfour and Moderate Liberal Cabinet Minister

9. Balfour’s Analysis of the Situation • Unionists must employ Lords’ veto strategically • How should Unionists proceed? • Unionists could amend bills to a point where the moderate cabinet members actually prefer the amended bill to the Cabinet’s initial, radical-left proposal. • Unionists might allow some bills through the Lords without amendment leaving the moderate Liberal ministers with the choice of voting with their cabinet colleagues for a law that they do not like or voting against their own colleagues to prevent this outcome.

10. Balfour’s Analysis of the Situation • Above strategies are not unproblematic logically • One must account for fact that: • The fact that the Liberals are aware of the Unionists’ incentives and vice versa • Unionists want to limit policy change, create an open split in the cabinet, and avoid raising questions about the Lord’s veto • Liberals want to alter policy, avoid being split, and build a case against the Lord’s veto • Actors cannot credibly commit to acting against their own preferences

11. Balfour’s Analysis of the Situation sq b1 B(U) LAB M(L) E(L) L(U) • Assume sq to right of Unionist-Liberal midpoint – reasonable due to the fact that the Unionists had been in power for an extended period of time. • Assume further that Balfour is correct: left wing of Cabinet succeeds in convincing moderates to agree to a very left-wing bill, b1, at the ideal point of the most left-wing cabinet member

12. Balfour’s Analysis of the Situation sq b1 b2 LAB M(L) B(U) E(L) L(U) • Amending to b2 leaves the all cabinet members to the right of the cabinet median better off than sq: the cabinet accepts the amendments.

13. Balfour’s Analysis of the Situation sq b1 b2 b3 B(U) LAB M(L) E(L) L(U) • But Unionists would prefer amending to b3 rather than b2 • b3 leaves M(L) better off than under b1 and sq • b3 alsoleaves E(L) better off than under sq • Cabinet therefore accepts the Lords amendments • This just limits Unionists’ losses. Can Unionists do even better?

14. Balfour’s Analysis of the Situation sq b1 b4 B(U) LAB M(L) E(L) L(U) • Amending to b4 leaves Unionists better off than sq. • E(L) prefers b1 to b4, but also prefers sq to b4. • M(L) prefers b4 to b1, but prefers sq to b4. • Cabinet rejects the Lord’s amendments and sq stands. • Inference: If Unionists make rightward amendments to sq’s already to right of cabinet, they will a) fail to move policy and b) end up in a confrontation with the Liberal cabinet.

15. Balfour’s Analysis of the Situation sq b1 b2 E(L) L(U) LAB M(L) B(U) • Only way Unionists can split the cabinet is with sq inside the cabinet’s Pareto set. • Then, Unionists may be able to amend so that M(L) prefers the Unionist’s amended bill to both sq and b1, e.g., b2. This would split cabinet • To avoid a cabinet split, Liberals should leave sq policies inside cabinet’s Pareto set untouched... or meekly accept any such amendments

16. Balfour’s Analysis of the Situation b1 b2 sq E(L) L(U) LAB M(L) B(U) • Unionists run into trouble when sq far to right, near L(U)’s ideal point • Balfour can direct Lord’s to amend to b2 (which Cabinet would accept), but will Lord’s follow Balfour’s orders? • As government, Liberals control agenda

17. Balfour’s Analysis of the Situation Policy change and amendments concentrated on issues in this interval E(L) L(U) LAB M(L) B(U) • Policy changes and amendments concentrated on x(M(L), L(U)] • Liberal’s avoid splits by ignoring sq[E(L), M(L)] • Unionists have to worry about sq[B(L), L(U)] • These insights arise once we stop thinking of parties as monolithic entities

18. Over-riding the Conservative Blockade • A failure to curb Lords will undercut Liberals’ attempts to deal with Ireland or outflank Labour • Consider their efforts on several policies • Education Bill • Licensing Bill • Old Age Pensions • Budget of 1909, “The People’s Budget”

19. The Education Bill • Lords votes 132 – 52 insisting on amendments gutting the bill • Liberals accept the amendments: “…the great majority [of Liberal MPs] thought that the education issue was not big enough to afford favourable ground from which to force the issue.” (Jenkins 1954, 25)

20. Threatening Talk • Liberals use 1907 Throne speech to sabre-rattle: “…serious questions affecting the working of our parliamentary system have arisen from unfortunate differences between the two houses,”…and, “His Majesty’s Ministers have this important subject under consideration with a view to a solution of this difficulty.” (Jenkins 1954, 28)

21. … But Little Action • Liberals actually oppose a proposal to create a nominated or elected Second Chamber: “A Liberal Government would be extremely ill-advised to touch the composition of the Second Chamber until it had settled its powers. To set up a nominated Second Chamber composed of grave and reverend [i.e., legitimate] but necessarily conservative-minded individuals would, if such a Chamber succeeded to the powers of the present House, both increase the evil and abolish the remedy which the present system provided…” (Jenkins 1954, 29-30)

22. The Licensing Bill: “A First-Class Funeral” • Bill to regulate public houses and liquor; reduce licenses by 1/3 • Resented by Irish (whiskey industry) • Brewers fund popular campaign against it; Hyde Park riot • Tories bitterly (opportunistically?) opposed: • Bill takes 8 months to get through Commons • Tories kill it in the Lords: 272-96.

23. Old Age Pensions • Lords is opposed: “…so prodigal of expenditure as likely to undermine the whole fabric of the Empire,” and “destructive of all thrift.” (Jenkins 1954, 37) • But Lansdowne convinces Tory Lords to defer to Commons: The bill is primarily financial in nature, and finance is by constitutional principle the Commons’ preserve.

24. Stalemate • Session of 1908 ends with Liberals in retreat: • A string of by-election losses • Lack of legislation sparks an internal revolt in Commons • Only financial matters pass through Lords • Financial needs critical: Pensions and German military build-up • Lord Carrington: ‘The session is spoilt and... Balfour & the Lords are masters of the situation’ (Blewett 1972, 48) • Liberal retreats suggest that Liberal cabinet has concentrated on issues inside their own cabinet’s Pareto set • Only pensions seems to have caused Unionists angst

25. Constitutional Chicken • Can we think of this as a ‘Chicken’ game? • Liberals can continue to issue populist legislation to provoke Lords • Lords can continue to use veto to frustrate the Liberal Government • Are both actors willing to risk the damage to the political elite – a social not a just a political revolution (Goschen) – that a Peer’s vs. People constitutional crisis might spark? • Still, both actors have incentives to take advantage of the other’s loss of nerve

26. Constitutional Chicken

27. Constitutional Chicken • Note: • If Liberal Gov’t submits populist bills, the Lords accept • But if Lords can commit to veto, Liberals submit moderate bills

28. Constitutional Chicken • Note: • If Liberal Gov’t submits populist bills, the Lords accept • But if Lords can commit to veto, Liberals submit moderate bills • Thus, there are 2 Nash equilbria, and neither is the reasonable compromise nor the disastrously irrational one.

29. Constitutional Chicken 0, 0 Veto • The normal form does not capture true legislative sequence • An extensive form version of the game does • Only one NE survives backward induction! Never get to (moderate, accept) in equilibrium • Lords’ promise to accept moderate bills are not credible – not subgame perfect. Populist Accept 3, 1 Liberal Govt. Lords 2, 2 Accept Moderate Veto 1, 3

30. Constitutional Chicken 0, 0 Veto • Puzzle: Even if we concede that Liberals stand to gain from forcing a Peers v. people election, we don’t get to the {Populist, Veto} outcome. Populist Accept 3, 1 Liberal Govt. Lords 2, 2 Accept Moderate Veto 1, 3

31. Circumventing the Veto • Liberal must incorporate social policy into budgets: “Accordingly he [Lloyd George] proceeded to frame his Budget for 1909 with the threefold purpose of raising the extra funds needed for old age pensions and other intended reforms; of making provisions for these reforms in the finance bill; and of adopting tax-raising devices which would be particularly distasteful to the Peers and might rouse them to throw out the Budget.” (quoted by Jenkins 1954, 41)

32. The People’s Budget • Introduced 29 April 1909 • Addressed budget shortfall by increased taxation • On incomes (Irish opposition) • On spirits • On land! • In as much as land had never been taxed, the land tax • arouses Aristocratic opposition • represents movement from a sq very favourable to Lords

33. The People’s Budget • Conservatives are implacably opposed: • Balfour: “vindictive, inequitable, based on no principle, and injurious to the productive capacity of the country.” • Carson: “the beginning of the end of all property rights.” • Landowne: “It is a monument of reckless and improvident finance.” • Rosebery: “It is inquisitorial, tryannical, and Socialistic.” • Blockade the Commons: 554 divisions over 6 months

34. The Limehouse Speech • Lloyd George ratchets up the rhetoric: “We are placing the burdens on the broadest shoulders. Why should I put burdens on the people? I am one of the children of the people. I was brought up amongst them, I know their trials, and God forbid that I should add one grain of trouble to the anxieties which they bear with such patience and fortitude. (Jenkins 1954, 56)

35. Overreaction • Aristocrats threaten massive reductions in staff on their estates • They become shrill; a Conservative MP noted: “He only wished the Dukes had held their tongues, every one of them…. It would have been a good deal better for the Conservatives Party if, before the Budget was introduced, every Duke had been locked up…” (Jenkins 1954, 57)

36. Continued Provocation • Lloyd George implicitly threatens the Lords should they exercise their veto: “The question will be asked ‘Should 500 men, ordinary men, chosen accidentally from among the unemployed, override the judgement – the deliberate judgement – of millions of people who are engaged in the industry which makes the wealth of this country?’…. The answers are charged with peril for the order of things which the Peers represent.” (Jenkins 1954, 57)

37. Damn the Consequences • Tories driven by Chamberlain’s extremism (and Chamberlain was electorally popular): “…the peers are not worthy of their seats if they do not reject the budget.” • The King, anxious to avoid a crisis, urges cross-party talks; both sides refuse • Tories prepare to veto

38. A Pyrrhic Victory? • Not all Tories convinced: “A general election immediately following the rejection of the Budget would, beyond all doubt, be disastrous to the fortunes of the Unionist Party. The Government would be returned with a sufficient majority to re-enact the Budget and to remain in office another five years. This would be bad enough, but it would be still worse if they obtained – as the must inevitably try to obtain – power to curtail the veto of the House of Lords. (Lord Lytton, quoted in Jenkins 1954, 62)

39. A Pyrrhic Victory? • Lytton’s opinion is not isolated “My Lords, if you win, the victory can at most be a temporary one. If you lose, you have altered and prejudiced the position, the power, the prestige, the usefulness of this House…” (Balfour of Burleigh, quoted in Jenkins 1954, 66)

40. The Die is Cast • Lansdowne moves on second reading, “… that this House is not justified in giving its assent to the Bill until it has been submitted to the judgement of the country.” • On 28 November 1909, the Budget is defeated by the Lords, 75-350

41. The Aftermath • Two election take place in 1910 • The January election results in a hung Parliament, but the People’s Budget is passed after land tax dropped. • A December election fails to break deadlock • Liberals rely on Irish nationalists to govern • Pass the Parliament Act 1911 undercutting Lords’ veto.

42. ‘Oligarchies are seldom destroyed and more frequently commit suicide’ (Lord Reay) • Why did the Unionist leadership act so recklessly? • Moderates (e.g., Lytton) were free-traders, disliked by “Whole-Hoggers” (Chamberlain-protectionists) • Balfour’s leadership hinged on Whole-Hoggers • Whole-Hoggers were a powerful lobby: “The agents, the organisations, and the Licensed Victuallers’ Trade all demand it. They know nothing of, and care nothing for constitutional Law.”

43. Policy, Office, and Votes? • Rejection suited the whole-hoggers policy goals: “What, then, are the two ways, and only two ways, before the country of meeting the necessities of the nation? On the one hand, you may do as we are doing. You may impose…. taxes on accumulated wealth. What is the other?, the only other that has yet been disclosed or even foreshadowed to Parliament and the country? It is to take a toll of the prime necessaries of life…. it is to surround your markets with a tariff wall…” (Asquith, quoted in Jenkins 1954, 64) • Defeating the Budget, left protectionism as the only alternative. • Intra-party victory for whole-hoggers at expense of inter-party defeat • Suggests that the spatial model we started out with is broadly accurate depiction of the situation: Unionists torn apart by Liberals moves on issues inside the Unionist Pareto set