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In [[1931]] MacDonald's government fell apart under the impact of the [[Great Depression in the United Kingdom|Great Depression]], and the Liberals agreed to join his National Government, which was dominated by the Conservatives. Lloyd George however was ill and did not join himself. Soon, however, the Liberals faced another divisive crisis when it was proposed to fight the [[United Kingdom general election, 1931|1931 general election]] as a National Government and seek a mandate for tariffs. From outside the government Lloyd George called for the party to abandon the government completely in defence of free trade, but only a few MPs and candidates followed him, most of them related to him. Another group under [[John Simon|Sir John Simon]] emerged who were prepared to continue their support for the government and take the Liberal places in the Cabinet if there were resignations. The third group under [[Herbert Samuel|Sir Herbert Samuel]] pressed for the parties in government to fight the election on separate platforms. In doing so the bulk of Liberals remained supporting the government, but two distinct Liberal groups had emerged within this bulk - the [[National Liberal Party (UK)|National Liberals]] led by Simon, also known as "Simonites", and the "Samuelites" or "official Liberals" led by Samuel who remained as the official party. Both groups secured about 35 MPs but proceeded to diverge even further after the election, with the National Liberals remaining supporters of the government throughout its life. There were to be a succession of discussions about them rejoining the Liberals but these usually founded on the issues of free trade and continued support for the National Government and came to little (though in [[1946]] the Liberal and National Liberal party organisations in London did merge).
The official Liberals found themselves a tiny minority within a government committed to protectionism. Slowly they found this issue to be one they could not support in any way. In early [[1932]] it was agreed to suspend the principle of [[collective responsibility]] to allow the Liberals to oppose the introduction of tariffs. Later in [[1932]] the Liberals resigned their ministerial posts over the introduction of the [[Ottawa Agreement]] on [[Imperial Preference]]. However they remained sitting on the government benches supporting it in Parliament, though in the country local Liberal activists bitterly opposed the government. Finally in late 1933 the Liberals crossed the floor of the House of Commons and went into complete opposition. By this point their number of MPs was severely depleted. In the [[United Kingdom general election, 1935|1935 general election]], just 17 Liberal MPs were elected, along with Lloyd George and three followers as "[[Independent Liberal Party (UK)|independent Liberals]]". Immediately after the election the two groups reunited, though Lloyd George declined to play much of a formal role in his old party. However over the next ten years there would be further defections as MPs deserted to either the National Liberals or Labour. There were however a few recruits, such as [[Clement Davies]], who had deserted to the National Liberals in [[1931]] but now returned to the party during the [[Second World War]] and who would lead it after the war.
Samuel had lost his seat in the [[United Kingdom general election, 1935|1935]] election and the leadership of the party fell to [[Archibald Sinclair, 1st Viscount Thurso|Sir Archibald Sinclair]]. With many traditional domestic Liberal policies now regarded as irrelevant, he focused the part on opposition to both the rise of Fascism in Europe and the [[appeasement]] foreign policy of the British government, arguing that intervention was needed, in contrast to the Labour calls for pacifism. Despite the party's weaknesses, Sinclair gained a high profile as he sought to recall the [[Midlothian Campaign]] and once more revitalise the Liberals as the party of a strong foreign policy.
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