[citation needed] News of the surrender of Lieutenant General Charles Cornwallis at Yorktown reached Britain late in November 1781, shortly before Parliament was due to debate the military spending estimates for the following year.

The hastily revised plan was that forces in America were to be retained at their existing level, but the policy of "offensive" war and long campaigns away from well-supplied strongholds (which had also led to the Saratoga defeat four years earlier) was to be abandoned in favour of a new approach, details of which had to remain secret.

The following week, Parliament voted for a guarantee of the "no offensive war" claim made the previous autumn, on the grounds that increased military commitment to America would, among other things, be "the means of weakening the efforts of this country against her European enemies".

[4] At the beginning of March, news arrived which absolutely confirmed the wisdom of this position – the loss of two more West Indian islands in January (with a third seemingly at the mercy of the French Navy), and of the Mediterranean base on Menorca in February.

The king's choice as replacement, Lord Shelburne (who, though an old friend of Benjamin Franklin, had initially stated in February that he "would never consent, under any possible given circumstances, to acknowledge the independency of America") refused the post, leading to the formation of a strange new government team, nominally led by Lord Rockingham, whom the King hated, with Shelburne and Charles James Fox, who hated each other, as Secretaries of State.

[5] Rockingham's team recognised that their priority was to get Britain out of its four linked wars, and that time might be short—within days of his appointment, news came from the West Indies that three more British islands had been captured by the French.

[citation needed] The British government decided to resist accepting American independence as a precondition for negotiation, as they were aware that the French government was nearly bankrupt, and that the British reinforcements sent to the West Indies might well reverse the situation there at any moment (the fleet was commanded by Admiral Rodney, who had returned to England from the Caribbean on sick-leave just before the French fleet there sailed north to blockade Yorktown; he also faced numerous expensive lawsuits over his looting of the Caribbean island of St. Eustatius—in short, a glorious victory was his only option).

On 23 April, Lord Shelburne, without specifically referring to the terms of that proposal, which he kept a secret from nearly all his colleagues, replied with an offer to accept full American independence, but on the existing borders.

[11] On 18 May, the decision to keep full independence as a point for negotiation was vindicated by the arrival in Europe of news that, over a month previously, Admiral George Rodney had gained a significant naval victory over the French in the Caribbean saving Jamaica from a Franco-Spanish invasion.

This was what both Rodney and Britain so desperately needed so Grenville was sent back to France to negotiate with both the Americans and the French, but found himself making little progress with either—only when Oswald told him about the Canada proposal did he begin to understand why, and he wrote an indignant letter to Charles Fox, who was no happier about what his hated rival Shelburne was doing.

Having exposed the trickery to his colleagues, at the end of June Fox proposed a vote that the independence of the United States should be accepted without preconditions, but in the light of Rodney's victory and the consequent French weakness, this was rejected (though the news that a combined Spanish and American fleet had forced the surrender to Spain of the Bahamas arrived in Britain at about this time).

[citation needed] On 1 July, Lord Rockingham, the figurehead leader of the government, died, so Shelburne was forced to take over, which led to the resignation of Fox and a massive split in the anti-war Whig party in Parliament.

[11] While the British were busy trying to stabilise their second new government of the year, Franklin neutralised what could have been France's biggest weapon against the United States—the vagueness of the repayment terms for the loans the French had been making to the Americans every few months since 1778.

By a contract dated 16 July 1782, America was to pay this money back on very favourable terms, with no payments due at all until three years after peace was finalised (a stipulation which would lead fairly directly to the next great milestone in American history, the Constitution of 1787).

The most notable of these was the rich Newfoundland fishery, one of the main factors which had drawn the French across the Atlantic over 250 years earlier, and which they had managed to retain as a concession when the British took Canada in 1763.

In particular, Spain's territories in Louisiana and the newly reconquered West Florida would be severely threatened if the American trend of economic growth based on expanded land holdings continued.

In their opposition to this expansion, ironically, the French and Spanish governments were effectively supporting the British on one of the points which had begun the move towards revolution in the 1760s—the use of military forces (paid for by taxes) to maintain a clear border between the colonies and the American Indian lands west of the Appalachians.

The French had done all they could to help the Spanish achieve their essential war aim, and began serious discussions on alternative exit strategies, urging Spain to offer Britain some very large concessions in return for Gibraltar.

French negotiator the Comte de Vergennes intervened in this discussion on the British side, but the result was a messy compromise, in which Congress was instructed merely to urge the State governments to make reparations to the Loyalists.

The same principle applied everywhere, and in September 1782, the Royal Navy had sent a large supply convoy to Gibraltar on the assumption that by the time it arrived, either the fortress would have been conquered, or the great assault would have been repelled and the siege weakened.

The objections of Spain ceased to be of any relevance, and the French accepted the preliminary peace treaty between Great Britain and the United States, on 30 November, with protests but no action.

With such considerations in mind, Spain continually thwarted John Jay's attempts to establish diplomatic relations during his long assignments in Madrid, and was the last participant in the American Revolutionary War to acknowledge the independence of the United States, a fortnight after the preliminary peace treaty with Britain, on 3 February 1783.

Britain agreed to return nearly all Dutch possessions captured in the East Indies (the most important of which, Trincomalee on Ceylon, had already been retaken by the French anyway) but kept Negapatnam on the Indian coast.

Richard Oswald was replaced by a new negotiator, David Hartley, but the Americans refused to allow any modifications to the treaty—partly because they would have to be approved by Congress, which, with two Atlantic crossings, would take several months.