At first the Liberal Government, under the leadership of Asquith, adopted a 'Business as Usual' approach to the War. The traditional Liberal policies of free trade and self-help meant that State intervention only took place as and when it was needed.

Therefore, in response to the need for men for military service a voluntary recruitment drive was started under Lord Kitchener. However the huge numbers of men recruited into the armed forces brought with it the problem of a shortage of labour in the work place. The Government addressed this problem by introducing a system of 'dilution'. This replaced skilled workers with an unskilled or semi-skilled workforce including older men, women and the disabled. The Unions accepted this on three conditions:

• These measures would only last as long as the War.
• Laws would be put in place to stop people making profits out of the War
• Unions would take a share in the direction of industry through local committees

Although the government worked with industry in this way, to ensure production of materials for the war effort, the main responsibility for the running of the War was left in the hands of the military. It was only the demands of total war on manpower and war production that forced the government to take a more active role.

The munitions problem was highlighted in March 1915 when the failure of the British offensive at Neuve-Chapelle was blamed on a shortage of munitions. Lloyd George, believed that a drastic improvement in the production and supply of munitions was needed and did not think that Kitchener was able to achieve this. Encouraged by Lloyd George, Lord Northcliffe published an article in May 1915 that blamed Kitchener and the War Office for the shortage of shells. The so-called 'Shell Scandal' helped to knock the Liberal Government from power and on 25th May 1915 a new coalition government was set up in its place. Within this government Lloyd George was given control over a newly created Ministry of Munitions department.

Labour shortage and longer working hours brought an increase in wages. However there was also an increase in the cost of living with the rise in taxes, rent and food prices.

At first the Government tried to balance the budget equally between the needs of a normal peacetime budget and wartime expenses but the increasing demands of the War meant that more control was needed and by 1916 the economy was directed solely around the war.