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First World War

Lloyd George was as surprised as almost everyone else by the outbreak of the First World War. On 23 July 1914, almost a month after the assassination of Archduke Franz Ferdinand of Austria and on the eve of the Austro-Hungarian ultimatum to Serbia, he made a speech advocating "economy" in the House of Commons, saying that Britain's relations with Germany were better than for many years. On 27 July he told C. P. Scott of the Manchester Guardian that Britain would keep out of the impending war. With the Cabinet divided, and most ministers reluctant for Britain to get involved, he struck Asquith as "statesmanlike" at the Cabinet meeting on 1 August, favouring keeping Britain's options open. The next day he seemed likely to resign if Britain intervened, but he held back at Cabinet on Monday 3 August, moved by the news that Belgium would resist Germany's demand of passage for her army across her soil. He was seen as a key figure whose stance helped to persuade almost the entire Cabinet to support British intervention. He was able to give the more pacifist members of the cabinet and the Liberal Party a principle—the rights of small nations—which meant they could support the war and maintain united political and popular support.

Lloyd George remained in office as Chancellor of the Exchequer for the first year of the Great War. The budget of 17 November 1914 had to allow for lower taxation receipts because of the reduction in world trade. The Crimean and Boer Wars had largely been paid for out of taxation, but Lloyd George raised debt financing of £321 million. Large (but deferred) increases in Supertax and income tax rates were accompanied by increases in excise duties, and the budget produced a tax increase of £63 million in a full year. His last budget, on 4 May 1915, showed a growing concern for the effects of alcohol on the war effort, with large increases in duties, and a scheme of state control of alcohol sales in specified areas. The excise proposals were opposed by the Irish Nationalists and the Conservatives, and were abandoned.