In October 1925, the Labour Party conference once again rejected the Communist Party's application for affiliation. It also banned Communists from representing unions and other affiliated organisations, as well as local Labour Party organisations. Communists were now to be excluded from the Labour Party altogether, even those who had become Labour councillors and parliamentary candidates.

This sent a clear signal to the Tory government. A few days later, twelve leading Communists were arrested on charges of 'seditious conspiracy'. These included Tom Bell (editor of the Communist Review), Willie Gallacher, Albert Inkpin (the Party’s general secretary), Harry Pollitt (at that time secretary of the National Minority Movement) and YCL general secretary Bill Rust. The Old Bailey judge described them as members of “an illegal party carrying out illegal work in this country”. Five were sentenced to a year in prison and the others to six months, keeping them out of the battle to come.

The intention was to paralyse the political and organisational leadership of the Party and intimidate the working class into compliance. However, far from being cowed into submission, Communists intensified their activities. Party publications grew in circulation and new members were made. Above all, Britain's Communists tried to prepare the labour movement for the next round of struggle, warning again and again that the government was determined to bring about a showdown with the miners when the 'Red Friday' subsidy expired in May 1926.

The government was well-prepared for the conflict, having conspired with employers and ex-army officers to set up the strike-breaking Organisation for the Maintenance of Supplies. The TUC general council made no plans. Rank and file pressure forced the decision for a general strike from midnight on May 3, in support of the miners locked out again for refusing a wage cut.

The nine days of the General Strike saw more than three million workers uniting in tremendous class solidarity and initiative. Although too few in number, Communists played an outstanding role in many localities. The TUC cautiously called out only about half of Britain's trade unionists, but more demanded the right to participate as the days went by. Despite the efforts of the OMS, Britain was at a standstill.

Well in advance, the Communist Party had initiated the call for Councils of Action. They were set up in many areas, representing the whole local working class movement, organising pickets, co-ordinating activities, issuing publicity materials and in some cases controlling transport and the local distribution of food.

Throughout the strike, the Party issued a daily news sheet—the Workers Bulletin—reaching a circulation of 200,000 at times. Many local Party groups issued their own bulletins repeating its reports. Nearly half of the 2,500 people arrested by police during the General Strike were Communists.

The YCL also threw itself into the battle, with its newspaper the Young Worker doubling its circulation and coming out weekly. By its fourth congress at the end of 1926, the League had more than trebled its membership to nearly 2,000. Its work in the Councils of Action meant that young miners now comprised more than three-quarters of the YCL membership, giving it a real working class base for the first time.

Likewise, the Communist Party doubled its membership in just four months to more than 10,000. But despite these advances, the Party's influence in the trade unions was not sufficient to prevent the betrayal of the strike by the right-wing leadership of the labour movement.

The TUC called off the strike when it was strongest and closest to victory. Indeed, most workers thought that a victory had been won. The reality was that the General Council had accepted a 'peace' formula which implied wage cuts and longer hours for the miners. When other strikers returned to work, they faced oppressive new terms of employment, no-strike rules and widespread victimisation. The miners were left to battle on alone for a seven more months, until hunger forced defeat.

Communists continued to fight for solidarity with the miners, campaigning for a levy on wages to give them financial support and for an embargo on the transport of coal.

It was a tragic end to a titanic struggle, yet it stimulated the demand for nationalisation of the mines, which finally became irresistible. Arthur Horner wrote later: “If there had been no '26, there would not have been such a tremendous feeling for the nationalisation of coal after the Second World War”.

For the Communist Party, the General Strike confirmed the need to strengthen the militancy of the trade unions, to step up the fight against class collaboration, to work for a new leadership of the labour movement and to build and strengthen the Party itself as an integral part of such developments.

For the right wing of the labour movement, the lesson in the words of one union leader was: “Never Again!” They had not wanted the strike, were pushed into it and called it off as soon as possible. For them, the Communists and the left were “trouble makers” who had to be removed.

The leadership of the labour movement set about a purge of the left, excluding Communists and Minority Movement supporters from union office and redoubling efforts to drive them out of the Labour Party. This would clear the way to diluting Labour's programme and establishing the machinery of class collaboration with the big employers, who were seeking to 'rationalise' industry and eliminate industrial action. The aim was a corporate state, in which employers, the government and 'responsible' trade union leaders would rule together as 'partners'—the economic model, minus any democratic rights, preferred by fascism.

Two views emerged within the Communist Party's central committee about how to respond. The majority favoured continuing the resistance inside the Labour Party, keeping up the demand for CP affiliation, working with Labour allies in the National Left Wing Movement and calling for the return of a Labour government. The minority argued for abandoning or severely modifying this perspective and concentrating on the Communist Party's independent and separate role in the working class movement. 

With the Communist International executive committee putting its enormous prestige behind the second view, the majority gave way in February 1928. 

Then the Comintern went further at its 6th world congress, attacking social democrats across Europe for propping up a capitalist system which could follow Italy and turn fascist. With capitalism hurtling towards a new and unprecedented crisis, there could be no middle way between siding with the interests of the working class—which in every country meant supporting the Communist Party—or siding with those of the capitalist class, as the social democrats were doing. The left-wing were denounced as the 'most dangerous faction' in the social democratic parties, 'essential for the subtle deception of the workers'. There were, the Comintern warned, 'social fascist tendencies' in social democracy.   

This new 'Third Period' line has since been presented by historians as one simply imposed by the Communist International without regard for local conditions or views. Certainly, the Comintern regarded the Party in Britain as one which lacked rigour and ruthlessness in dealing with ideological and political deviations; while its sense of solidarity was admirable, Presidium member Manuilsky told the British  delegates in Berlin, it was too much like a 'society of great friends'.

But another part of the truth is that, in Britain, a great many rank and file Communists adopted the 'New Line' with enthusiasm. One of its leading advocates, Harry Pollitt, backed by the Comintern, was elected CP general secretary in 1929 to carry it through. It appeared to provide a political rationale for uncompromising retaliation against the campaign of bans, expulsions and organisational manipulation already underway in the Labour Party and the unions. 

But, reinforced by Comintern policy, the Communist Party allowed its responses to take on a sectarian character. The Labour left, notably the ILP, was singled out for especially sharp attack, and Communists raised the question of forming new revolutionary unions. Although this was only seriously attempted in extreme circumstances, in Scotland—under the greatest provocation—Party members and sympathisers actually established a breakaway, militant miners' union mainly comprised of workers who had been blacklisted for their activity during the General Strike. A separate, Communist-led union for clothing workers arose from a strike in north London.

In some cases the Comintern acted as a restraining force, opposing moves to fight for trade union disaffiliations from the Labour Party and to drop the demand for CP affiliation to it.    

At the same time, the new turn provided a further pretext for Labour’s national executive committee to expel scores of constituency organisations for refusing to implement anti-Communist bans. In some areas, this resulted for years in the existence of two Trades and Labour Councils in some towns and cities—one affiliated, the other not.

At the 1929 General Election, the Communist Party's manifesto 'Class Against Class' had called for a 'Revolutionary Workers' Government' rather than a general vote for Labour.

The second right-wing, minority Labour government led by Ramsay MacDonald confirmed Communist fears. Clinging to orthodox Treasury policies, it neither anticipated the great financial crash which broke out on Wall Street, nor had any idea how to counteract the economic slump that followed. Instead, at the command of US and British bankers, plans were drawn up to slash public spending including unemployment benefits and public sector wages.