The Liberal Party lost its dominant place in British politics during the First World War and has suffered from two interlinked problems ever since. First, it has been a squeezed third party in a first-past-the-post electoral system, in which elections have been a competition for office between the Conservative and Labour parties. Second, national political debate came to focus on central government policies towards the economy, especially Labour's interventionist economic plans, which Conservatives painted as “socialism”. In a debate on that issue, Liberals were at a strong disadvantage (as the other parties intended), since their arguments were not as simplistic and memorable as those of their competitors. Liberals did not want to reduce politics to an ideological battleground between capital and labour and between free enterprise and state intervention. As a result, they seemed irrelevant to the big economic debates that the media regarded as central to politics. This further cemented their third-party status, which in turn led them to call for proportional representation (PR). Liberals argued that PR was needed to prevent the economy being damaged by a succession of single-party governments alternating between two clashing and simplistic economic philosophies.

In the early 1960s, the Liberal Party began to revive. The idea of a free-thinking centre party liberated from the narrow approaches of its two opponents began to resonate with voters looking for a different politics. From the late 1970s, this revival gathered pace, as the party, and its successor the Liberal Democrats (Lib Dems), benefited from the perception that both main parties were too extremist, together with class dealignment in voting patterns. But since the 1990s, Conservative and Labour governments have taken a broadly social market approach to economic management, so Lib Dems have no longer had a distinctively centrist stance on economics.