As the economic situation worsened MacDonald agreed to form a "National Government" with the Conservatives and the Liberals. On 24 August 1931 MacDonald submitted the resignation of his ministers and led a small number of his senior colleagues in forming the National Government together with the other parties. This caused great anger among those within the Labour Party who felt betrayed by MacDonald's actions: he and his supporters were promptly expelled from the Labour Party and formed a separate National Labour Organisation. The remaining Labour Party MPs (led again by Arthur Henderson) and a few Liberals went into opposition. The ensuing 1931 general election resulted in overwhelming victory for the National Government and disaster for the Labour Party which won only 52 seats, 225 fewer than in 1929.

When did MacDonald submit the resignation of his ministers?