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163. The Issue of Tariff Reform.—The rehabilitation of the Liberal party came during the years 1902–1905. It was foreshadowed by the famous Chesterfield speech of Lord Rosebery, delivered December 16, 1901, although the immediate effect of that effort was but to accentuate party cleavages,[221] and it was made possible by a reversion of the national mind from the war to domestic questions and interests. More specifically, it was the product of opposition to the Government's Education Act of 1902, of public disapproval of what seemed to be the growing arrogance of the Unionist majority in the House of Lords, and, above all, of the demoralization which was wrought within the ranks of Unionism by the rise of the issue of preferential tariffs. In a speech to his constituents at Birmingham, May 15, 1903, Mr. Chamberlain, but lately returned from a visit to South Africa and now at the height of his prestige, startled the nation by declaring that the time had come for Great Britain to abandon the free trade doctrines of the Manchester school and to knit the Empire more closely together, and at the same time to promote the economic interests of both the colonies and the mother country, by the adoption of a system of preferential duties on imported foodstuffs. Later in the year the gifted exponent of this revolutionary programme entered upon a vigorous speaking campaign in defense of his proposals, and there was set up a large and representative tariff commission which was charged with the task of framing, after due investigation, a tariff system which would meet the needs alleged to exist. Among the Unionist leaders there arose forthwith a division of opinion which portended open rupture. The rank and file of the party was nonplussed and undecided, and throughout many months the subject engrossed attention to the exclusion of very nearly everything else.[222]

In this situation the Liberals found their opportunity. All but unanimously opposed to the suggested departure, they assumed with avidity the rôle of defenders of England's "sacred principle of free trade" and utilized to the utmost the appeal which could now be made to the working classes in behalf of cheap bread. Mr. Chamberlain denied that his scheme meant a wholesale reversal of the economic policy of the nation, but in the judgment of most men the issue was joined squarely between the general principle of free trade and that of protection. Throughout 1904 and 1905 the Government found itself increasingly embarrassed by the fiscal question, as well as by difficulties attending the administration of the Education Act, the regulation of Chinese labor in South Africa, and a number of other urgent tasks, and the by-elections resulted so uniformly in Unionist defeats as to presage clearly the eventual return of the Liberals to power.

164. The Liberals in Office: the Elections of 1906.—Hesitating long, but at the last bowing somewhat abruptly before the gathering storm, Mr. Balfour tendered his resignation December 4, 1905. The Government had in the Commons a working majority of seventy-six, and the Parliament elected in 1900 had still another year of life. In the Lords the Unionists outnumbered their opponents ten to one. The administration, however, had fallen off enormously in popularity, and the obstacles imposed by the fiscal cleavage appeared insuperable. Unable wholly to follow Mr. Chamberlain in his projects, the premier had grown weary of the attempt to balance himself on the tight rope of ambiguity between the free trade and protectionist wings of his party. Not caring, however, to give his opponents the advantage which would accrue from an immediate dissolution of Parliament and the ordering of an election which should turn on clear issues raised by the record of the ten years of Unionist rule, he chose simply to resign and so to compel the formation of a new government which itself should be immediately on trial when the inevitable elections should come.

On the day of Mr. Balfour's resignation the king designated as premier the Liberal leader, Sir Henry Campbell-Bannerman, who forthwith made up a cabinet of rather exceptional strength in which the premier himself occupied the post of First Lord of the Treasury, Sir Edward Grey that of Foreign Affairs, Mr. Herbert H. Asquith that of the Exchequer, Mr. Richard B. Haldane that of War, Lord Tweedmouth that of the Navy, Mr. David Lloyd-George that of President of the Board of Trade, Mr. John Burns that of President of the Local Government Board, Mr. Augustine Birrell that of President of the Board of Education, and Mr. James Bryce that of Chief Secretary for Ireland. January 8, 1906, the "Khaki Parliament" was dissolved, a general election was ordered, and the new parliament was fixed to meet at the earliest legal date, February 13. The campaign that followed was the most animated, except that of 1910, in recent British history. The Unionists, being themselves divided beyond repair on the question of the tariff, pinned their hope to a disruption of the Liberal forces on the issue of Home Rule. The Liberal leaders, however, steadfastly refused to allow the Irish question to be brought into the foreground. Recognizing that Home Rule in the immediate future was an impossibility, but pledging themselves to a policy contemplating its establishment by degrees, they contrived to force the battle principally upon the issue of free trade versus protection and, in general, to direct their most telling attack upon the fiscal record and fiscal policies of their opponents. The result was an overwhelming Liberal triumph. In a total of 6,555,301 votes,[223] 4,026,704 were cast for Liberal, Nationalist, and Labor candidates, and only 2,528,597 for Conservatives and Unionists. There were returned to the House of Commons 374 Liberals, 84 Nationalists, 54 Laborites, 131 Conservatives, and 27 Liberal Unionists, assuring the Liberals and their allies a clear preponderance of 354.[224] Prior to the elections careful observers believed the return of the Liberals to power inevitable, but a victory of such proportions was not dreamed of by the most ardent of the party's well-wishers.[225]