The financial crisis now became a political crisis as well.
The Liberal and Conservative Party leaders demanded bigger cuts in expenditure, particularly on unemployment. The TUC was opposed to all cuts.
On the 21 August, the Cabinet agreed on a saving programme of £56 million.
This figure was too low for the bankers and for the opposition leaders, who stated that they would join forces against the Government once Parliament was recalled.
MacDonald approached the Federal Reserve Bank in New York for a loan in return for a greater reduction in government expenditure. This would include a 10% cut in unemployment benefit.
The biggest point of contention for the Labour Cabinet had always been the cut to unemployment benefits.
The Cabinet voted eleven in favour and nine against the 10% reduction in unemployment benefit. It was clear that the Cabinet was too divided.
On the 24 August, Ramsay MacDonald went to the Palace to offer his Government’s resignation.
Ramsay MacDonald stayed on as Prime Minister, heading a National Government. Few Labour MPs followed him. He was regarded as a turncoat for his betrayal and subsequently expelled from the Labour Party.