Hugh Gaitskell

He attended New College, Oxford, from 1924 to 1927. Studying under G. D. H. Cole, Gaitskell became a socialist and wrote a long essay on Chartism, arguing that the working class needed middle class leadership. Gaitskell's first political involvement came about as a result of the General Strike of 1926. Most students supported the government and many volunteered for civil defence duties, or helped to run essential services. Gaitskell, unusually, supported the strikers and acted as a driver for people like his Oxford contemporary Evan Durbin and Cole's wife Margaret, who made speeches and delivered the trade union newspaper British Worker. After the collapse of the General Strike, Gaitskell spent another six months raising funds for the miners, whose dispute (technically a lockout rather than a strike) did not end until November. He graduated with a first-class degree in Philosophy, Politics and Economics in 1927.

In 1927–28 Gaitskell lectured in economics for the Workers' Educational Association to miners in Nottinghamshire. His essay on Chartism was published as a WEA booklet in 1928. This was his first experience of interaction with the working class. Gaitskell eventually came to oppose both Cole's Guild Socialism and Syndicalism and to feel that the General Strike had been the last failed spasm of a strategy - attempting to seize power through direct trade union action - which had already been tried in the abortive Triple Alliance Strike of 1921. It is unclear whether Gaitskell was ever sympathetic to Oswald Mosley, then seen as a future leader of the Labour Party. Gaitskell's wife later insisted that he never had been, but Margaret Cole, Evan Durbin's wife and Noel Hall believed that he was, although as an opponent of factional splits he was not tempted to join Mosley's New Party in 1931.

Gaitskell helped to run the New Fabian Research Bureau, set up by G. D. H. Cole in March 1931. He was selected as Labour candidate for Chatham in autumn 1932. Gaitskell moved to University College London in the early 1930s at the invitation of Noel Hall. In 1934 he joined the XYZ Club, a club for Labour financial experts (e.g. Hugh Dalton, of whom he became a protégé, Douglas Jay and Evan Durbin) and City people such as the economist Nicholas Davenport. Dalton and Gaitskell were often referred to as "Big Hugh and Little Hugh" over the next fifteen years.

Gaitskell's budget was praised at the time. His predecessor Stafford Cripps wrote to him praising him for not giving in to "political expediency", whilst he was supported in public by two younger MPs later to be staunch allies, Roy Jenkins and Anthony Crosland. After the budget Tony Benn, who was on the right of the Labour Party at that time, recorded the atmosphere at the party meeting (i.e. a meeting of Labour MPs) on 11 April as "sheer relief" that it had not been worse; the Parliamentary Labour Party (PLP) strongly supported the budget. However, Bevan soon rejected Gaitskell's proposed compromise that it be announced that the health charges were not be permanent as "a bromide". Bevan's ally Michael Foot wrote an editorial in Tribune comparing Gaitskell to Philip Snowden (the Chancellor whose cuts in 1931 had brought down the Second Labour Government, after which he and other leading members of the Cabinet entered into the Tory-dominated National Government). Bevan resigned on 21 April, as did Harold Wilson and John Freeman.

In 1934 Gaitskell was in Vienna on a Rockefeller scholarship. He was attached to the University of Vienna for the 1933–34 academic year and witnessed first-hand the political suppression of the social democratic workers movement by the conservative Engelbert Dollfuss's government in February 1934. This event made a lasting impression, making him profoundly hostile to conservatism but also making him reject as futile the Marxian outlook of many European social democrats. This placed him in the socialist revisionist camp.

At the 1935 general election, he stood unsuccessfully as the Labour Party candidate for Chatham. Gaitskell helped to draft "Labour’s Immediate Programme" in 1937. This had a strong emphasis on planning, although not as much as his mentor Dalton would have liked, with no plans for the nationalisation of banks or the steel industry. He also drafted documents which would have been used in the election due in 1939–40. Dalton helped him to be selected as candidate for South Leeds in 1937, and had it not been for the war, he would very likely have become an MP by 1940.

By the mid-1930s Gaitskell had formed a close relationship with a married woman, Mrs. Dora Frost (née Creditor), who came out to join him in Vienna for the latter part of his stay there. Adultery still carried such stigma that she thought it best not to help him during his Parliamentary campaign in Chatham in 1935. After her divorce, hard to obtain prior to the passage of the Matrimonial Causes Act 1937, they were eventually married on 9 April 1937, Gaitskell's thirty-first birthday, with Evan Durbin as best man. Dora had a son, Raymond Frost (b 1925), from her first marriage. The Gaitskells had two daughters: Julia, born in 1939 and Cressida, born in 1942. Dora Gaitskell became a Labour life peer one year after her husband's death, and died in 1989.

Gaitskell became head of the Department of Political Economy at UCL when Hall was appointed Director of the National Institute of Economic and Social Research in 1938, jointly with Paul Rosenstein-Rodan. He also became a University Reader. He opposed the appeasement of Nazi Germany and supported rearmament.

Gaitskell had inherited £14,000 (around £800,000 at 2015 prices) from an aunt in April 1938, which was invested for him and multiplied several times (at a time of relatively high inflation) by a friend in the City. Gaitskell appears to have largely ignored this sum of capital, and his wife had no idea of his wealth. His estate was valued for probate at £80,013-10s-0d on 23 April 1963 (around £1.5m at 2015 prices). He is buried in the churchyard of St John-at-Hampstead Church, north London. His wife died in 1989 and was buried alongside him.

During the Second World War, from the formation of Churchill's coalition government in May 1940 Gaitskell worked with Noel Hall and Hugh Dalton as a senior civil servant for the Ministry of Economic Warfare, giving him experience of government. As Dalton's Private Secretary Gaitskell was more of a Chef de Cabinet and trusted adviser. Observers watched Gaitskell blossom and enjoy exercising power. Dalton liked to shout at his subordinates; Gaitskell sometimes shouted back. Along with Dalton Gaitskell was moved to the Board of Trade in February 1942, where for the first time he came into contact with the leaders of the miners’ unions, who were later to support him in his struggles against Aneurin Bevan in the 1950s. For his service, he was appointed Commander of the Order of the British Empire in 1945.

In March 1945 Gaitskell suffered a coronary thrombosis brought on by overwork. Advised to rest, he considered withdrawing from his parliamentary candidacy in Leeds, but he was popular with his constituency workers and they offered to campaign for him even if he was unable to do so. He was also approached to return to UCL as a Professor after the war, but he disliked the constant state of flux of academic economics and the increasing emphasis on mathematics, a subject of which he had little knowledge. By now he found himself more drawn to public life.

Gaitskell was elected Labour Member of Parliament (MP) for Leeds South in the Labour landslide victory of 1945. Despite his illness, as a protege of Dalton he was seriously considered for immediate appointment as a junior minister, Parliamentary Under-Secretary at the Board of Trade (under Stafford Cripps). This would have been a rare honour as 263 of the 393 Labour MPs in 1945 were newly elected, but did not take place.

As a backbencher, he spoke in debates in support of Dalton's nationalisation of the Bank of England, which eventually received Royal Assent on 14 February 1946. Dalton was trying to score party points by claiming that he was reasserting political control over the City of London, a far-fetched claim as the Bank was already under political control. Although some Conservative MPs spoke against the measure it was not opposed by Churchill, then Leader of the Opposition, who had had an ambivalent view of the Bank since his own time as chancellor in the 1920s.

Gaitskell was given his first ministerial appointment in May 1946 as Parliamentary Under-Secretary for Fuel and Power, serving under Emmanuel "Manny" Shinwell. The job had initially been earmarked for Harold Wilson, with Gaitskell pencilled in to succeed Wilson as Parliamentary Under-Secretary at the Ministry of Works. Gaitskell believed that Shinwell, who was suspicious of middle class intellectual socialists, may have picked him in preference to Wilson because the latter was already an expert on the mining industry.

Gaitskell played an important role steering the Coal Nationalisation Bill through the House of Commons, bearing the brunt of the committee stage and winding up the final debate. In the fuel crisis of February 1947 Shinwell, who had ignored Gaitskell's warnings, had to ask the Cabinet for permission to shut down power stations; Gaitskell was put on and ran the key committee which decided where coal should be sent. In 1947 he once again played an important role steering electricity nationalisation through the House of Commons, winding up the debate on the second reading.

On 7 October 1947 Gaitskell was promoted to Minister of Fuel and Power in Shinwell's place. He was not made a member of the Cabinet, although he often attended Cabinet meetings when his input was required. He had committed a gaffe during the municipal election campaign in Hastings earlier that year, when he recommended that people save fuel by taking fewer baths, adding that he had never taken all that many himself; in the House of Commons in late October Churchill joked that it was no wonder that the Government were "in bad odour" and asked the Speaker if he might be permitted to describe Labour ministers as "lousey", normally an unparliamentary expression, as it would be a simple statement of fact. Gaitskell made himself very unpopular by abolishing the basic petrol ration for private motorists, but encouraged the building of oil refineries, a move little-noticed at the time which would have important repercussions for the future.

The young ministers were now in favour of devaluation of the Pound Sterling, currently at $4.03. Jay lunched with Gaitskell on 20 July 1949, and they agreed that this would help to reverse the drain of capital out of the UK, that the USA was unlikely to help with further loans or gifts of dollars, that Commonwealth countries needed to be encouraged to buy British goods rather than goods priced in dollars, that there was potential to increase exports to dollar areas, and that if nothing was done there was a risk of reserves running low and a collapse in sterling putting the UK at the mercy of the USA. On 21 July Gaitskell, Jay and Wilson met the Prime Minister to tell him that devaluation was inevitable as reserves were still dropping. On 29 July, the Cabinet agreed in principle to devalue, having also been given the same advice in another memo from senior civil servants, Sir Edward Bridges (Permanent Secretary to the Treasury) and the two Treasury Second Secretaries (Robert Hall and Sir Edwin Plowden).

The level of spending on the new NHS was already running far in excess of predictions. In November 1949, with the high level of public spending already a problem and under pressure from Cripps, Bevan had pushed an act through Parliament granting the government the power to impose prescription charges, although they were not brought in just yet (Cripps had wanted 1 shilling per prescription, but Bevan had not agreed to this). In the 1949–50 financial year Cripps had allowed £90m of extra health service spending ("supplementaries"). Early in 1950 Cripps backed off from a plan to introduce further charges, this time on false teeth and spectacles, after Bevan threatened to resign, but Gaitskell was put on a committee to monitor Bevan's agreement to a ceiling on NHS spending. The Treasury wanted health spending capped at £350m per annum, although it was willing to accept £392m for 1950–1.

In January 1950 Gaitskell submitted a paper called "Control and Liberalisation" to the Economic Policy Committee, which he was sometimes invited to attend. He wrote that "On 'liberalisation' we have gone about far enough. But we have done it for political reasons – US and Europe". He was opposed to the convertibility of currencies and non-discrimination between trading partners, both policies which the USA favoured. Britain still preferred to encourage trade in pounds sterling within the Commonwealth, and Gaitskell wanted to preserve Britain's ability to avoid downturns like the US downturn of 1948–9, which Britain had largely escaped because of devaluation.

By the second half of 1950 the western powers were caught up in a major rearmament drive. The outbreak of the Korean War in June 1950 at first threatened US loss of South Korea (which was seen as vital for the defence of Japan), and by the autumn threatened to escalate into a general war between the US and Communist China. There were also very real worries that the Soviets might invade western Europe (which was unarmed, with strong communist influence in many countries) and that the USA would not help Britain if she did not help herself. The crushing of democracy in Czechoslovakia had been as recent as 1948. In August 1950 the British defence budget was hiked from £2.3bn to £3.6bn (a total over a three-year period); at this stage it had appeared that the USA would be willing to help foot the bill.

In September 1950 inflationary pressure was worsened when the TUC voted to end the existing two-year wage freeze, although there was no wage explosion just yet. It was difficult for the Treasury to take tough measures given the government's small majority and the likelihood of another election soon.

Gaitskell thought balance of payments problems should be solved not by realignments of currencies but by asking surplus countries like the US and Belgium to inflate their economies (so they would import more). He was attacked for this by the US Treasury Secretary and Camille Gutt (former Belgian finance minister and now Managing Director of the IMF). Dell argues that Gaitskell did not realise that other countries had their own domestic problems. In September 1950, with Britain's balance of payments now in surplus, Gaitskell negotiated British membership of the European Payments Union, meaning that instead of bilateral clearing, European currencies were to be convertible against one another even if not against the US dollar. Previously dollars had been needed for trade within Europe. Until then Gaitskell had shared concerns that some countries might stay in permanent deficit and thus effectively use their neighbours for free borrowing, or conversely that Belgium's surplus would enable her to suck gold and dollars from Britain. The EPU lasted until sterling was made convertible in 1958.

Cripps, whose health was still failing, had notified Attlee of his intention to resign as Chancellor of the Exchequer on 26 April 1950. He attempted to resign in the summer but was dissuaded by Gaitskell and Plowden because of the outbreak of the Korean War. He instead went on a long holiday, leaving Gaitskell in charge.

It was now becoming clear that the US Congress was reluctant to help Britain meet the cost of rearmament. Gaitskell visited Washington in October 1950, his first visit there, just before becoming Chancellor. He warned that the terms of trade were shifting against Britain, and of the costs of rearmament.

In October 1950 Cripps finally resigned as Chancellor of the Exchequer. Dalton proposed Gaitskell for the vacancy. Sir Edward Bridges wanted Herbert Morrison, a political heavyweight; Morrison had been an early advocate of devaluation but did not regard himself as qualified. Gaitskell was appointed at the young age of 44, especially unusual as most of Attlee's Cabinet were in their sixties or older. He became the Chancellor with the shortest Parliamentary apprenticeship since Pitt the Younger in 1782. As Chancellor of the Exchequer he retained the same control over economic planning which Cripps had had. Both Cripps and Gaitskell insisted that Gaitskell be listed after Attlee, Bevin and Morrison in the official Cabinet pecking order.

The US Chiefs of Staff wanted an even greater increase in the British armaments budget to £6bn over three years, a plan backed by the British Chiefs of Staff and urged on Prime Minister Attlee on his visit to the US in Dec 1950. On his return from Washington Attlee told the House of Commons on 29 January 1951 that the defence budget was to be hiked to £4.7bn over the next three-year period, including a fourfold increase in munitions production. The defence budget was to increase from 8% to 14% of GNP, a proportion exceeded only by the USA amongst NATO members. At the peak 2.5m people, 11% of the workforce, would be engaged in defence work.

In December 1950, Gaitskell rejected the advice of Kim Cobbold (Governor of the Bank of England) and Hall that interest rates be raised, calling such a policy "completely antiquated".

A £300m surplus in the British balance of payments in 1950 turned into a £400m deficit in 1951, the most sudden reversal on record up until that time. This was caused partly by businesses switching to rearmament rather than generating exports. The other reason was a deterioration in the terms of trade: higher oil prices after the Iranian oil crisis caused an outflow of dollars, whilst prices of wool, tin and rubber fell so the rest of the sterling area was not earning so many dollars from exports. By the second half of 1951 the overseas sterling area was importing from North America at double the 1950 rate. By 1951 inflation was beginning to increase, the government budget surplus had disappeared, and in another sign of an overheating economy unemployment was down to 1945 levels. By the second half of 1951 Gaitskell was worried about the political effect of the higher cost of living, but the Financial Times and The Economist accused him of using higher prices to choke off consumption and free up resources for rearmament instead of consumer goods production.

Marshall Aid, which had totalled $3.1bn over previous three years, ended officially on 1 January 1951, although in practice it ended six weeks earlier. It was held that the balance of payments was now strong enough for it no longer to be necessary. Harold Wilson (President of the Board of Trade) and George Strauss (Minister of Supply) warned Gaitskell that the burden of rearmament was too much for the shortage of raw materials and manufacturing capacity, but Gaitskell ignored them as they were friends of Bevan. On 27 January 1951 Bevan was reshuffled to the Ministry of Labour with Health, now under Hilary Marquand, downgraded to a non-Cabinet appointment. Gaitskell welcomed the changes as reducing an obstacle to economies in health spending.

Bevan's Commons speech on 15 February 1951 defended the extra £4.7bn on armaments, although most of his speech was a warning not to rearm too fast and that communism would be defeated through democratic socialism not through arms. Gaitskell the following day recorded his regret that for all Bevan's brilliance in oratory he should be "a difficult team worker, and some would say even worse – a thoroughly unreliable and disloyal colleague."

Gaitskell made the controversial decision to introduce charges for prescription glasses and dentures on the National Health Service in his spring 1951 budget. The Cabinet had agreed in principle in February 1951 to charges on teeth and spectacles. For 1951-2 Bevan was demanding £422m of health spending, whereas Gaitskell was willing to allow £400m. Gaitskell wanted to pass on half the cost of false teeth and spectacles, to bring in £13m in 1951-2 and £23m in a full year. Children, the poor and the sick were to be exempt. On 9 March Ernest Bevin was moved from the Foreign Office, dying a month later. Bevan, who had hoped to succeed him, was passed over for promotion to a major job for the second time in six months. By this point other ministers felt that Bevan was looking for an issue on which to resign, and that it was pointless making too many concessions as he needed to be made to appear to be in the wrong.

John Campbell agrees that Bevan may have been partly right that Gaitskell, abetted by Morrison, was deliberately trying to drive him out of the Cabinet. Gaitskell believed that Labour had to be seen to govern with fiscal responsibility, telling Dalton on 4 May 1951 that he and Bevan were engaged in a battle for the soul of the Labour Party, and that if Bevan won Labour would be out for many years (although, ironically, Gaitskell won but they were out of power for many years anyway). Had Attlee not been sick, he might have been able to patch up a compromise.

Bevan stood against Gaitskell for Party Treasurer, knowing he would likely lose but hoping to discredit union bosses Arthur Deakin and Tom Williamson in the eyes of rank-and-file trade union members. In the event even Sam Watson, leader of Bevan's own miners' union, supported Gaitskell. Gaitskell won by 4.3 million votes to 2 million. Bevan gave a speech to the Tribune party at the conference, declaring that the Labour Leader needed to be a "desiccated calculating machine". He was widely and probably wrongly thought to be referring to Gaitskell, to whom the label stuck. In fact it may well have been aimed at Attlee who had the previous day warned against "emotionalism" whilst privately Bevan thought that Gaitskell was highly emotional and, as he had shown in 1951, "couldn’t count".

In early July 1949 Gaitskell shared Chancellor of the Exchequer Stafford Cripps' worries that Treasury officials were too "liberal" and too reluctant to implement socialist measures. Like Cripps and Dalton, Gaitskell was a devotee of cheap money. Not only were higher interest rates seen as associated with the Gold standard and the deflationary policies of the 1920s, but the policy preference in the 1940s was for quantitative controls (e.g. exchange controls in finance, or rationing of physical goods) rather than the price mechanism. Interest rates, which had been cut to low levels in the 1930s, did not begin to be used as an instrument of policy again until after the Conservatives returned to power in 1952.

When the Conservatives returned to power, the new chancellor Rab Butler would get the balance of payments back into surplus in 1952 by cutting overseas spending, a measure which Dell suggests Gaitskell had not wanted to irritate the Americans by taking. In his memoirs (Art of the Possible, p. 163) Butler later called him "a political mouse who, confronted with a gigantic deterioration in the balance of payments, responded by cutting a sliver off the cheese ration". After the Conservatives cut the armament plans in 1952 Crosland told people that Gaitskell had made him look like "a complete idiot" for supporting the budget in public. However, even by the end of 1951 there was less likelihood of the Korean War turning into a general war (the front line had stabilised, with the US administration being clear that they did not wish to escalate hostilities against China), so any government might have pared back defence spending in 1952.

In February 1952 Bevan led a rebellion of 56 other Labour MPs to vote against the Conservatives’ defence spending plans (the official Labour position was to abstain). Dalton recorded (11 March) that Gaitskell was, behind the scenes, keen for a showdown with Bevan. At the party meeting Bevan refused to agree to toe the party line, but the issue was defused by a conciliatory motion by the centrist "Keep Calm" group, passed against the wishes of the platform. Bevan at this time thought that Gaitskell should be reduced to "a junior clerk" in the next Labour Government. On 1 August 1952, when Gaitskell had succeeded in putting Churchill (Prime Minister at the time) on the ropes in a House of Commons debate, Bevan intervened to attack Gaitskell, an event greeted with Tory relief and according to Crossman "icy silence" on the Labour benches.

Relations between Bevan and Gaitskell continued to be acrimonious. On one occasion in 1953, when Gaitskell called for unity at a Shadow Cabinet meeting, Bevan was observed to give him "a glare of concentrated hatred" and declared: "You’re too young in the movement to know what you’re talking about". Bevan resigned from the Shadow Cabinet in April 1954 over Labour's support for the setting-up of SEATO.

In March 1955 Bevan, who had given no hint of disagreement with party policy at the party meeting a few days earlier, now challenged Attlee in a House of Commons debate to demand terms for use of the new H-Bomb in return for Labour's support for the weapon. He and 62 other abstained in the vote, leading to demands from loyalists that the party whip be withdrawn from him as a preliminary to him being formally expelled from the Labour Party by the NEC.

The May 1955 General Election was the first since 1931 in which Labour's vote had not increased. In Tribune on 21 June 1955 Gaitskell poured scorn on the idea that more left-wing policies (or, as he put it, policies more similar to those of the Communist Party) would have won Labour more votes. Campbell argues that "history overwhelmingly supports" Gaitskell's argument that elections are won by appealing to the centre ground rather than to a party's core base, tempting as the latter strategy often is to parties in opposition.

At the Margate conference that autumn Gaitskell gave a stirring and well-received speech including an apparently unscripted passage stressing his own socialist credentials and arguing that nationalisation was still a "vital means" to achieving that end. Bevan was observed to be watching the speech "red-faced and furious" and complaining of Gaitskell's "sheer demagogy". In October 1955 Gaitskell was re-elected Party Treasurer by a wider margin over Bevan than the previous year.

The apparent congruence between Gaitskell's economic policies and those of his Conservative successor as chancellor Rab Butler, who had retained and extended NHS charges, was sometimes labelled "Butskellism" by the press. This view was not shared by Gaitskell himself, and after Butler's emergency "Pots and Pans" budget in October 1955, in which he reversed tax cuts made prior to the Conservatives' re-election at the General Election earlier that year, he attacked him strongly for allegedly having misled the electorate. Gaitskell won further praise for his attacks on Butler.

After the retirement of Attlee as leader in December 1955, Gaitskell stood for party leader against Bevan and the ageing Herbert Morrison. At that time (and until 1981) the Labour Party leader was elected solely by MPs. In a final effort to stave off an inevitable Gaitskell victory, Bevan proposed that he and Gaitskell both withdraw in Morrison's favour, but Gaitskell rejected the offer. Gaitskell comfortably defeated Bevan (Morrison came a poor third) in the party leadership contest. Chuter Ede described the leadership election as "the political funeral of two of the greatest publicity mongers I’ve ever known," adding that Gaitskell had never actively sought publicity.

In 1956 the Egyptian ruler Colonel Gamal Abdel Nasser nationalised the Suez Canal Company, beginning the Suez Crisis. Gaitskell initially told the Prime Minister, Sir Anthony Eden, and the Chancellor of the Exchequer Harold Macmillan at a dinner with King Faisal II of Iraq on 26 July 1956, that they would have the support of public opinion for the use of military action against Nasser, but warned Eden that he must act quickly and would have to keep the Americans closely informed. Gaitskell denounced Nasser's action at 11am on 27 July in the House of Commons debate.

Gaitskell passionately condemned the eventual Anglo-French military intervention to secure the Suez Canal, supposedly launched to enforce international law and to separate the Egyptian and Israeli combatants; the Israeli attack had in fact been launched in collusion with the British and French to supply a pretext for the invasion. On 31 October he publicly called the invasion "an act of disastrous folly" which threatened the Atlantic Alliance, the United Nations and Commonwealth solidarity. On 4 November 1956 Gaitskell gave a powerful broadcast, attacking the Prime Minister now it was clear Eden had been lying to him in private. Gaitskell was accused by the Conservatives of trying to appeal to the Labour Left, and of betrayal.

Gaitskell had initially believed nationalisation to be both morally right and economically efficient, and hoped in vain that manager-worker relations would be transformed. But in 1956 he published a Fabian pamphlet "Socialism and Nationalisation" (actually written three years earlier), arguing that there was no need for greater public ownership, and that his goals were full employment, industrial democracy and a greater spread of economic power. Gaitskell still supported physical controls and his views were a little to the left of those expressed by Anthony Crosland in "The Future of Socialism" (1956).

Frank Cousins became General Secretary of the TGWU in 1956, beginning the process whereby the unions began to shift left. The 1957 Conference endorsed the document "Industry and Society", which called for more flexibility, including state purchase of shares in small private firms. This was loudly condemned by Bevan's wife Jennie Lee and by Michael Foot, editor of Tribune but out of Parliament at the time.

During the 1959 election campaign Crossman thought Gaitskell had become "a television star" with Bevan "a rather faded elder statesman behind him" (22 September 1959). The Labour Party had been widely expected to win the 1959 general election, but did not. The Conservatives increased their majority, a fact partly attributable to the post-war prosperity that Britain was now experiencing. Gaitskell was undermined by public doubts about the credibility of proposals to raise pensions and by a highly effective Conservative campaign run by Harold Macmillan under the slogan "Life is better with the Conservatives, don't let Labour ruin it." This election defeat led to questions being asked as to whether Labour could ever win a general election again, but Gaitskell remained as leader.

The November 1959 Conference, postponed because of the election, was already divided by rumours that Gaitskell was planning action over Clause IV. Ignoring advice from his allies, and partly motivated by detailed polling by Mark Abrams which showed that younger voters regarded Labour as old-fashioned, Gaitskell pushed for reform. Brivati writes that Clause IV was irrelevant in practice but Gaitskell had made "a frontal assault on … a Labour equivalent of the Thirty-nine Articles of the Church of England".

There was much talk that Bevan might now seize the party leadership, but it seems unlikely that he had the stomach for this anymore, not least as he had never wanted to be leader solely for its own sake. Gaitskell could no longer afford to quarrel with his deputy, and he enjoyed a position of great influence as keeper of the party's conscience, similar to, but much more powerful than, the position of John Prescott relative to Tony Blair forty years later. Moreover, by the end of 1959 Bevan was seriously unwell; he withdrew from the public eye and died in July 1960.

In March 1960 the NEC agreed a new statement of Labour's aims as an addition to Clause IV rather than a replacement. Throughout the summer of 1960 union conferences, many of whose rule books had their own equivalent to Clause IV, were hostile to the new proposal, and in the end four of the six largest unions opposed Gaitskell's plans. The new proposal was demoted to a "valuable expression".

Gaitskell took on Frank Cousins and wanted to show that Labour were a party of government, not just of opposition. At the October 1960 Scarborough Conference two resolutions in favour of unilateral disarmament – proposed by the TGWU and the Engineers’ Union – were carried, whilst the official policy document on defence was rejected. Gaitskell roused his supporters by promising to "Fight and Fight and Fight Again" to reverse the decision. Labour doctrine was that the Parliamentary Party had discretion over the timing of implementation of conference policy. In practice, in the 1940s and '50s, the unions, whose block votes dominated conference, had been broadly supportive of the PLP, but this was now beginning to change. Gaitskell was challenged unsuccessfully for the leadership by Harold Wilson in November 1960.

The Blackpool Conference of October 1961 saw a narrow conference vote in favour of multilateral disarmament. Winning the unilateralism vote in 1961 restored Gaitskell's authority in the party and his reputation in the country. Unilateral nuclear disarmament remained a divisive issue, and many on the Left continued to call for a change of leadership. Gaitskell was again challenged unsuccessfully for the Labour leadership in November 1961, this time by Anthony Greenwood.

In a speech to the party conference in October 1962, Gaitskell claimed that Britain's participation in a Federal Europe would mean "the end of Britain as an independent European state, the end of a thousand years of history!" He added: "You may say, all right! Let it end! But, my goodness, it's a decision that needs a little care and thought."

In mid-December 1962, Gaitskell fell ill with flu, but he was declared well enough by his doctor to travel to the Soviet Union, where he met the Soviet leader Nikita Khrushchev for talks. Upon his return to Britain his condition deteriorated after he contracted another virus. On 4 January he was admitted to Middlesex Hospital in Marylebone, where, despite enormous efforts by doctors to save his life, he died on 18 January, with his wife at his bedside. He had died from complications following a sudden flare-up of lupus, an autoimmune disease which had affected his heart and kidneys. He was 56. The shock of his death was comparable to that of the sudden death of the later Labour Party leader John Smith, in May 1994, when he too seemed to be on the threshold of 10 Downing Street.

In 1978, some 15 years after his death, a new housing development by Sandwell council in the Tividale area of the West Midlands was named Gaitskell Terrace.

The Campaign for Democratic Socialism was founded to promote the Gaitskellite cause – it never acquired much influence in the ranks of the trades unions, but achieved some success in promoting the selection of friendly Parliamentary candidates. Many of the younger CDS members would later be among the founding members of the breakaway Social Democratic Party (SDP) in 1981.

John Campbell writes that "the echoes of the Gaitskell-Bevan rivalry continued to divide the party right up to the 1980s". Neil Kinnock (Labour Leader 1983–92) grew up in South Wales and was brought up as an admirer of Bevan, but although he disliked the comparison his battle with the hard-left Militant Tendency in the mid-1980s had echoes of Gaitskellism; John Smith (Labour Leader 1992-4) had been a Gaitskellite as a young man in the early 1960s; Tony Blair's first act as leader in 1994 was finally to abolish Clause IV – for this and other acts he was supported by the elderly Roy Jenkins, who had become a Liberal Democrat by then. Like Gaitskell before him, Blair was often seen by many of his enemies in the Labour Party as a public-school educated, middle-class interloper.