Between 1981 and 1983, the parties together won seats in by-elections in: The formation of the SDP and the subsequent alliance came at a time when the British economy was in a deep recession and Margaret Thatcher's Conservative government was proving unpopular; since coming to power in May 1979, unemployment had risen from over 1,500,000 to 3,000,000 and beyond by 1982, driven mainly by a sharp contraction in the manufacturing sector.

In 1981, there were riots in London's Brixton, Birmingham's Handsworth, Leeds' Chapeltown, Liverpool's Toxteth and Manchester's Moss Side.

Having moved over to the hard left, he had been given the position of Shadow Minister without Portfolio which freed him up from formal ministerial obligations while still affording him high status.

His public appearances at events organised by Militant, a far-left entryist group, alienated key Labour figures.

[10] With an election not due until May 1984, the Alliance proved to be an instant hit with voters who were disgruntled with the Conservatives and Labour, as many opinion polls in late 1981 and early 1982 showed the Alliance leading opinion polling by a wide margin, peaking with a 50% showing – up to twice the level of support shown for the Conservatives around this time.

A Security Council Resolution 502 was passed the next day demanding an immediate Argentine withdrawal, which was ignored, so Thatcher sent out a task force to recapture the islands—by military means, if necessary.

The Alliance came under heavy criticism from Foot in the aftermath of the 1983 election; he condemned them for "siphoning" support away from the Labour Party and enabling the Conservatives to win more seats.

By this stage, the recession had ended three years earlier and the battle against inflation had clearly been won; however unemployment – seen as a major factor in a string of inner city riots that autumn – was still above 3,000,000.

In the 1987 general election, each party's vote share fell slightly; the Liberals won 17 seats (the same as in 1983), while the SDP won five (one fewer than four years previously), while Labour were firmly established as Britain's second major political party with a much stronger showing than in 1983, although the Conservatives still achieved a third successive election win with Thatcher still at the helm.