During the remainder of 1903 the struggle within the Unionist party continued. Mr Chamberlain spoke all over the country, advocating a definite scheme for reorganizing the budget, so as to have more taxes on imports, including food, but proposing to adjust the taxation so as to improve the position of the working-classes and to stimulate employment. The free-trade Unionists, with the duke of Devonshire, Lord Goschen, Lord James and Lord Hugh Cecil, as their chief representatives, started a Free Food league in opposition to Mr Chamberlain's Tariff Reform league; and at a great meeting at Queen's Hall, London, on the 24th of November their attitude was made plain. They rejected Mr Chamberlain's food-taxes, discredited his statistics, and, while admitting the theoretical orthodoxy of retaliation, criticized Mr Balfour's attitude and repudiated his assumption that retaliation would be desirable. Finally in December came the appointment of Mr Chamberlain's Tariff Commission. There was no doubt about the obstinacy and persistency of both sections, and both were fighting, not only to persuade the public, but for the capture of the party and of its prime minister. Both sides were inclined to claim him; neither could do so without qualification.

His dialectical dexterity in evading the necessity of expressing his fiscal opinions further than he had already done became a daily subject for contemptuous criticism in the Liberal press; but he insisted that in any case no definite action could be taken till the next parliament; and while he declined to go the "whole hog" - as the phrase went - with Mr Chamberlain, he did nothing to discourage Mr Chamberlain's campaign. Whether he would eventually follow in the same direction, or would come back to the straiter free-trade side, continued to be the political conundrum for month after month. Minor changes were made in the ministry in 1903, Mr Brodrick going to the India office and Mr Arnold-Forster becoming minister for war, but Mr Balfour's personal influence remained potent, the government held together, and in 1904 the Licensing Bill was successfully carried. Though a few Unionists transferred their allegiance, notably Mr. Winston Churchill, and by-elections went badly, Mr Balfour still commanded a considerable though a dwindling majority, and the various contrivances of the opposition for combining all free-traders against the government were obstructed by the fact that anything tantamount to a vote of censure would not be supported by the "wobblers" in the ministerial party, while the government could always manage to draft some "safe" amendment acceptable to most of them.

This was notably shown in the debate on Mr Black's motion on the 18th of May. On the 3rd of October Mr Balfour spoke at Edinburgh on the fiscal question. The more aggressive protectionists among Mr Chamberlain's supporters had lately become very confident, and Mr Balfour plainly repudiated "protection" in so far as it meant a policy aiming at supporting or creating home industries by raising home prices; but he introduced a new point by declaring that an Imperial Conference would be called to discuss with the colonies the question of preferential tariffs if the Unionist government obtained a majority at the next general election. The Edinburgh speech was again received with conflicting interpretations, and much discussion prevailed as to the conditions of the proposed conference, and as to whether it was or was not an advance, as the Chamberlainites claimed, towards Mr Chamberlain. Meanwhile the party was getting more and more disorganized, and the public were getting tired of the apparent mystification.

The opposition used the situation to make capital in the country, and loudly called for a dissolution.

It was plain indeed that the fiscal question itself was ripe for the polls; Board of Trade statistics had been issued in profusion, and the whole case was before the country. But, though Mr Chamberlain declared his desire for an early appeal to the electors, he maintained his parliamentary loyalty to Mr Balfour. There were, moreover, public reasons why a change of government was undesirable. From 1903 onwards the question of army reform had been under discussion, and the government was anxious to get this settled, though in fact Mr Brodrick's and Mr Arnold-Forster's schemes for reorganization failed to obtain any general support. And while foreign affairs were being admirably conducted by Lord Lansdowne, they were critical enough to make it dangerous to contemplate a "swopping of horses." The Russo-Japanese War might at any moment lead to complications. The exercise by Russian warships of the right of search over British ships was causing great irritation in English commercial circles during 1904; after several incidents had occurred, the stopping of the P. & O. steamer "Malacca" on July 13th in the Red Sea by the Russian volunteer cruiser "Peterburg" led to a storm of indignation, and the sinking of the "Knight Commander" (July 24th) by the Vladivostok squadron intensified the feeling.

On the 23rd of October the outrageous firing by the Russian Baltic fleet on the English fishing-fleet off the Dogger Bank in the North Sea was within an ace of causing war. It was not till the 28th that Mr Balfour, speaking at Southampton, was able to announce that the Russian government had expressed regret, and that an international commission would inquire into the facts with a view to the responsible persons being punished. Apart from the importance of seeing the Russo-Japanese War through, there were important negotiations on foot for a renewal or revision of the treaty with Japan; and it was felt that on these grounds it would be a mistake for the government to allow itself to be driven into a premature dissolution, unless it found itself unable to maintain a majority in parliament. At the same time the government's tenure of office was obviously drawing to its close; the usual interpretation of the Septennial Act involved a dissolution either in 1905 or 1906, and the government whips found increased difficulty in keeping a majority at Westminster, since neither the pronounced Chamberlainites nor the convinced free-trade Unionists showed any zeal, and a large number of the uncertain Unionists did not intend to stand again for parliament.