The events of the session of 1905 soon foreshadowed the end. The opposition were determined to raise debates in the House of Commons on the fiscal question, and Mr Balfour was no less determined not to be caught in their trap. These tactics of avoidance reached their culminating point when on one occasion Mr Balfour and his supporters left the House and allowed a motion hostile to tariff reform to be passed nem. con. Though the Scottish Churches Bill, the Unemployed Bill and the Aliens Bill were passed, a complete fiasco occurred over the redistribution proposals, which pleased nobody and had to be withdrawn owing to a blunder as to procedure; and though on the 17th of July a meeting of the party at the foreign office resulted in verbal assurances of loyalty, only two days later the government was caught in a minority of four on the estimates for the Irish Land Commission. For a few days it was uncertain whether they would resign or dissolve, but it was decided to hold on.
The real causes, however, which kept the government in office, were gradually losing their validity. The Russo-Japanese War came to an end; the new offensive and defensive alliance with Japan was signed on the 12th of August; the successful Anglo-French agreement, concluded in April 1904, had brought out a vigorous expression of cordiality between England and France, shown in an enthusiastic exchange of naval visits; and the danger, which threatened in the early summer, of complications with France and Germany over Morocco, was in a fair way of being dispelled by the support given to France by Great Britain. The Liberal leaders had given public pledges of their adhesion to Lord Lansdowne's foreign policy, and the fear of their being unable to carry it on was no longer a factor in the public mind. The end came in November 1905, precipitated by a speech made by Mr Balfour at Newcastle on the 14th, appealing for unity in the party and the sinking of differences, an appeal plainly addressed to Mr Chamberlain, whose supporters - the vast majority of the Unionists - were clamouring for a fighting policy. But Mr Chamberlain was no longer prepared to wait.
On the 21st of November at Bristol he insisted on his programme being adopted, and Mr Balfour was compelled to abandon the position he had held with so much tactical dexterity for two years past. Amid Liberal protests in favour of immediate dissolution, he resigned on the 4th of December; and Sir Henry Campbell-Bannerman, being entrusted by the king with the formation of a government, filled his cabinet with a view to a general election in January. The Unionists went to the polls with divided counsels, and sustained a crushing defeat, remarkable nevertheless for the comparative success of the tariff reformers. While Mr Chamberlain had a signal personal triumph in all the divisions of Birmingham, Mr Balfour himself was defeated by a large majority in Manchester.
Being in a miserable minority in parliament (157 Unionists against 379 Liberals, 51 Labour members, and 83 Nationalists), some form of consolidation among the Unionists was immediately necessary, and negotiations took place between Mr Balfour and Mr Chamberlain which resulted in the patching up of an agreement (expressed in a correspondence dated February 14th), and its confirmation at a meeting of the party at Lansdowne House a few days later. The new compact was indicated in Mr Balfour's letter, in which he declared that "fiscal reform is, and must remain, the first constructive work of the Unionist party; its objects are to secure more equal terms of competition for British trade and closer commercial union with the colonies; and while it is at present unnecessary to prescribe the exact methods by which these objects are to be attained, and inexpedient to permit differences of opinion as to these methods to divide the party, though other means are possible, the establishment of a moderate general tariff on manufactured goods, not imposed for the purpose of raising prices, or giving artificial protection against legitimate competition, and the imposition of a small duty on foreign corn, are not in principle objectionable, and should be adopted if shown to be necessary for the attainment of the ends in view or for purposes of revenue." Mr Balfour's leadership of the whole party was now confirmed; and a seat was found for him in the City of London by the retirement of Mr Gibbs.
The downfall of Mr Balfour's administration, and the necessity of reorganizing the Unionist forces on the basis of the common platform now adopted, naturally represented a fresh departure under his leadership, the conditions of which to some extent depended on the opportunities given to the new opposition by the proceedings of the Radical government (see Campbell-Bannerman, Sir H.; and Asquith, H. H.). His own administration had been wrecked, through no initiative of his, by the dissensions over the fiscal question. But his wide range of knowledge and interests, his intellectual finesse, his personal hold over his supporters, his statesmanlike grasp upon imperial problems and his oratorical ability, had been proved to a remarkable degree; and in foreign affairs his tenure of power had been conspicuously successful. He left his country indeed in a position of strength abroad, which it had not held since the Crimean War. His institution of the permanent Committee of Imperial Defence, and of the new Army Council (1904), were reforms of the highest importance, resulting from the report of a "triumvirate" consisting of Lord Esher, Sir John Fisher and Sir George Clarke, appointed in November 1903. The Unionist regime as a whole, however, had collapsed.
Its ministers had become "stale." The heavy taxation of the war years was still retained, to the disgust especially of the income-tax payers; and new issues arose over the Education Act, labour questions, and the introduction of Chinese labour into South Africa (in 1904), which were successfully used against the government in the constituencies. The result was an electoral defeat which indicated, no doubt, a pronounced weakening of Mr Balfour's position in public confidence. This verdict, however, was one based mainly on temporary reasons, which were soon to be overshadowed by the new issues involved in the change of ministry. As a matter of fact, a year of opposition had not passed before his power in the House of Commons, even with so small a party behind him, was once more realized. The immense Radical majority started with a feeling of contempt for the leader who had been rejected at Manchester, but by 1907 he had completely reasserted his individual pre-eminence among parliamentarians. Mr Balfour had never spoken more brilliantly, nor shone more as a debater, than in these years when he had to confront a House of Commons three-fourths of which was hostile.
His speech at Birmingham (November 14, 1907), fully accepting the principles of Mr Chamberlain's fiscal policy, proved epoch-making in consolidating the Unionist party - except for a small number of free-traders, like Lord Robert Cecil, who continued to hold out - in favour of tariff reform; and during 1908 the process of recuperation went on, the by-elections showing to a marked degree the increased popular support given to the Unionist candidates. This recovery was due also to the forcible-feeble character of the Radical campaign against the House of Lords, the unpopularity of the Licensing Bill, the failure of the government to arrive at an education settlement, the incapacity of its Irish administration, its apparent domination by the "little navy" section, and its dallying with Socialism in the budget of 1909. The rejection of this budget in December by the House of Lords led to a desperate struggle at the polls in January 1910, but the confident hopes of the Unionists were doomed to disappointment.
They won back over a hundred seats, returning 273 strong, but were still in a minority, the Liberals numbering 275, Labour members 40, and Irish Nationalists 82. Mr Balfour himself was elected for the City of London by an enormous majority.
Mr Balfour's other publications, not yet mentioned, include Essays and Addresses (1893) and The Foundations of Belief, being Notes introductory to the Study of Theology (1895). He was made LL.D. of Edinburgh University in 1881; of St Andrews University in 1885; of Cambridge University in 1888; of Dublin and Glasgow Universities in 1891; lord rector of St Andrews University in 1886; of Glasgow University in 1890; chancellor of Edinburgh University in 1891; member of the senate London University in 1888; and D.C.L. of Oxford University in 1891. He was president of the British Association in 1904, and became a fellow of the Royal Society in 1888. He was known from early life as a cultured musician, and became an enthusiastic golf player, having been captain of the Royal and Antient Golf Club of St Andrews in 1894-1895.