The Social Credit Party had been represented in Parliament in one form or another from 1935 until the 1958 election, when the Progressive Conservatives under John Diefenbaker won the biggest majority government in Canadian history.
At the ensuing leadership convention, Caouette lost to Thompson, who had the support of the leader of the party's most powerful branch, Alberta Premier Ernest Manning.
Approximately three-quarters of the delegates supported the motion to: The convention also voted to appoint a ten-member committee to consider forming an affiliated party to contest provincial elections.
Caouette then gave a 55-minute speech to the convention saying that the results were the basis for forming an “efficient national Social Credit movement”.
[2] On 2 September 1963, seven Quebec MPs announced that they would be supporting Caouette's breakaway faction: Maurice Coté (Chicoutimi), Jean-Louis Frenette (Portneuf), Chapdelaine, Gerard Ouelette (Rimouski), Marcel Lessard (Lac-Saint-Jean) and Gérard Girouard (Labelle).
They announced that they would establish a new branch of the National Social Credit Association in Quebec to replace Caouette's Ralliement des créditistes, which had been serving in that role.
[4] Caouette met with 14 Quebec Socred MPs on 2 September 1963 to start work on creating the new party, saying, “Eventually we will attempt to make this a national party and take it across Canada to protect French Canadians in every province.”[5] His faction now included Charles Gauthier (Roberval), Gilles Gregoire (Lapointe), Gerard Perron (Beauce), Gilbert Rondeau (Shefford), Pierre Boulin (Dorchester), R. Beaulé (Quebec Est), L.-P. Boulanger (Charlevoix), Raymond Langlois (Megantic), in addition to Latulippe and Dionne.
Caouette again called for a new national convention of the Social Credit Party of Canada to choose a new leader, and announced that the Thompson loyalists in the Quebec caucus would not be expelled from the Ralliement des creditistes.
Caouette said that Thompson did not care about the French Canadian view of politics, and was afraid of embracing social credit doctrine, for which there was more support in Quebec than in the rest of Canada.
The Thompson faction was now reduced to 11 MPs, one less than the minimum for a party to be a recognized group in the Commons, which meant that Caouette—and not Thompson—would receive an extra $4,000 per year in compensation (worth about $29,700 in 2011 dollars[8]), and be given priority in speaking in the House.
Social Credit Action, led by James Audy, the party's former candidate in Spadina riding, and by David Hartman, also of Toronto, announced its support for Caouette.
In that election, Caouette's party only ran two candidates outside of Quebec, Raymond Berthiaume in the Glengarry—Prescott and Joseph-Hurgel Dubé in Restigouche—Madawaska, both ridings with large francophone populations.
He made no secret of his strong nationalist views, but maintained that he wanted to work within the spirit and letter of Confederation: “Let us not burn our bridges.
It is not the time for le Ralliement des créditistes to be separatists, but rather to win recognition for the French fact within Canada.”[12] Caouette said that he would fight for the recognition of French Canada's aspirations within Confederation on the basis of a partnership with the other nine provinces, “But if this partnership cannot be brought about, I shall become the more ardent separatist in Quebec.”[13] Thompson's Social Credit Party continued to stagnate, electing only five MPs to the House of Commons in the 1965 federal election – one up from the 1962 and 1963 performance in English Canada.
Manning, was concerned at the leftward drift of Canadian politics and urged Thompson to negotiate a merger between Social Credit and Robert Stanfield's Progressive Conservatives.