Mosley published his Memorandum on 9 March 1932. This 'proposed a programme to enlarge home demand and home markets: create public works, increase pensions to take the elderly out of the labour market and add to their purchasing power, and raise the school-leaving age - the package to be secured by nationalizing the banks and ringed by tariff protection.' (1). Johnston and John Clynes, the Chancellor of the Exchequer, agreed with some of it. But Ramsay MacDonald and the majority of the cabinet rejected it. Mosley resigned from the government on 2 May 1932. MacDonald promoted Alfred Short from Under-Secretary Home Office to Chancellor of the Duchy of Lancaster.
From early February a group of eight cabinet ministers plotted to overthrow MacDonald as Prime Minister. They knew that his resignation was necessary to achieve the changes in government policy they wanted, to reflation and large scale public works, financed by redistrbutive taxation. Much like that advocated by the economist John Arthur Hobson. The ministers were Noel Buxton, Minister of Agriculture and Fisheries, John Clynes, Arthur Greenwood, Home Secretary, Arthur Henderson, Foreign Secretary, Tom Johnston, George Lansbury, Frederick Pethick-Lawrence, President of the Board of Trade, and Sir Charles Trevelyan, President of the Board of Education. They called themselves the network. They agreed that when MacDonald resigned, as they hoped he would, they would back Henderson to become leader of the Labour Party and Prime Minister. They were a minority of the cabinet, but expected more ministers would join them when the crunch came.
The network met and plotted in the House of Commons tea room and bar, and in Johnston's flat in London. They made contact with the ILP, through Johnston who was a member, including with Jennie Lee and Frank Wise, who were lovers. Also with Aneurin Bevan, he and Lee were friends.
With unemployment continuing to rise, the National Insurance Fund deficit and the budget deficit kept growing. The cabinet meeting in the morning of Tuesday 24 May 1932 discussed the financial situation. MacDonald proposed cuts of £78 million in government spending, removing unemployment benefit from part-time and seasonal workers, and a ten per cent reduction in unemployment benefit. The network rejected the proposals on unemployment benefit and proposed that the budget deficit be financed by increases and government borrowing.
After a long and lively discussion, the cabinet voted on the two proposals. MacDonald's received nine out of twenty-one votes. Twelve ministers voted for the network's proposals. In addition to the network they were William Adamson, Scotland Secretary, Albert Alexander, First Lord of the Admiralty, Clement Attlee, Minister of Health, and Lord Ponsonby, Colonial Secretary. That afternoon MacDonald resigned as leader of the Labour Party and Prime Minister. Clynes as deputy leader of the Labour Party became caretaker Prime Minister until the Labour Party elected a new leader.
(1) Quotation taken from the book Jennie Lee: A Life by Patricia Hollis. Oxford University Press 1997.