Old as he was, his generalship retained all its energy; and a disciplined army, covered by a cloud of horse and backed by a train of artillery, poured down in 1780 on the plain of the Carnatic. The small British force which met him was driven into Madras, and Madras itself was in danger. The news reached Hastings when he was at last on the verge of triumph over the Mahrattas; but his triumph was instantly abandoned, a peace was patched up, and every soldier hurried to Madras. The appearance of Eyre Coote checked the progress of Hyder, and after a campaign of some months he was hurled back into the fastnesses of Mysore. India was the one quarter of the world where Britain lost nothing during the American war; and in the annexation of Benares, the extension of British rule along the Ganges, the reduction of Oudh to virtual dependence, the appearance of English armies in Central India, and the defeat of Hyder, the genius of Hastings laid the foundation of an Indian Empire.

But while England triumphed in the East, the face of the war in America was changed by a terrible disaster. Foiled in an attempt on North Carolina by the refusal of his fellow general, Sir Henry Clinton, to assist him, Lord Cornwallis fell back in 1781 on Virginia, and entrenched himself in the lines of York Town. A sudden march of Washington brought him to the front of the English troops at a moment when the French fleet held the sea, and the army of Cornwallis was driven by famine to a surrender as humiliating as that of Saratoga. The news fell like a thunderbolt on the wretched Minister who had till now suppressed at his master's order his own conviction of the uselessness of further bloodshed. Opening his arms and pacing wildly up and down his room, Lord North exclaimed "It is all over," and resigned. England in fact seemed on the brink of ruin. In the crisis of the American struggle Ireland itself turned on her. A force of forty thousand volunteers had been raised in 1779 for the defence of the island against a French invasion.

Threats of an armed revolt backed the eloquence of two Parliamentary leaders, Grattan and Flood, in their demand for the repeal of Poynings' Act, which took all power of initiative legislation from the Irish Parliament, and for the recognition of the Irish House of Lords as an ultimate Court of Appeal. The demands were in effect a claim for national independence; but there were no means of resisting them, for England was without a soldier to oppose the volunteers. The fall of Lord North recalled the Whigs under Lord Rockingham to office; and on Rockingham fell the double task of satisfying Ireland and of putting an end, at any cost, to the war with the United States. The task involved in both quarters a humiliating surrender; and it needed the bitter stress of necessity to induce the Houses to follow his counsels. The English Parliament abandoned by a formal statute the judicial and legislative supremacy it had till then asserted over the Parliament of Ireland; and negotiations were begun with America and its allies. In the difficulties of England the hopes of her enemies rose high.

Spain refused to suspend hostilities at any other price than the surrender of Gibraltar. France proposed that England should give up all her Indian conquests save Bengal. But the true basis of her world-power lay on the sea; and at this moment the command of the seas again became her own. Admiral Rodney, the greatest of English seamen save Nelson and Blake, had in January, 1780, encountered the Spanish fleet off Cape St. Vincent, and only four of its vessels escaped to Cadiz. Two years later the triumphs of the French Admiral De Grasse called him to the West Indies, and in April 1782, a manoeuvre which he was the first to introduce broke his opponent's line, and drove the French fleet shattered from the Atlantic. In September a last attack of the joint force gathered against Gibraltar was repulsed by the heroism of Elliott. Nor would America wait any longer for the satisfaction of her allies. In November her commissioners signed the preliminaries of a peace, in which Britain reserved to herself on the American continent only Canada and the island of Newfoundland, and acknowledged without reserve the independence of the United States. The treaty of peace with the United States was a prelude to treaties of peace with the Bourbon powers.

France indeed won nothing in the treaties with which the war ended; Spain gained only Florida and Minorca. England, on the other hand, had won ground in India; she had retained Canada; her West Indian islands were intact; she had asserted her command of the seas. But at the close of the war there was less thought of what she had retained than of what she had lost. The American Colonies were irrecoverably gone. It is no wonder that in the first shock of such a loss England looked on herself as on the verge of ruin, or that the Bourbon Courts believed her position as a world-power to be practically at an end. How utterly groundless such a conception was the coming years were to show.