It was created in 1981 as a centrist breakaway group from the Labour Party by those who thought the Labour Party had moved too far to the left, making it unelectable and leaving the Conservative Party effectively unchallenged. The founding members, the "gang of four", were senior Labour moderates: the leader Roy Jenkins, David Owen, Bill Rodgers, and Shirley Williams. They announced the new party at a press conference and outlined their policies in the "Limehouse declaration".
The SDP did not prosper. It created the SDP-Liberal Alliance with the Liberal Party late in 1981, under the joint leadership of Roy Jenkins (SDP) and David Steel (Lib). The Alliance did well in the 1983 general election, running Labour very close, winning 25% of the national vote (to Labour's 28%) and having 23 MPs. It did not expand on this advantage however; in 1987 the party's share of the vote fell slightly. By this time the SDP was under the leadership of David Owen.
After the disappointment of 1987, Steel proposed a formal merger of the two parties. He was fiercely opposed by Owen, but the majority of the SDP membership agreed to the union. Owen resigned as leader and was replaced by Robert Maclennan. Steel and Maclennan headed the new Social and Liberal Democrat Party (SLD) from March 3, 1988 while Owen remained defiant at the head of the newly re-established and much reduced SDP. The SLD were renamed the Liberal Democrats in October 1989. Although the continuing SDP beat the other parties to second place behind William Hague in the Richmond by-election in 1989, by 1990 they finished behind the Official Monster Raving Loony Party in the Bootle by-election. Within a week Owen had announced the end of the party.
A small number of SDP activists carried on without David Owen under the SDP name for several years, after the official demise of the party in 1990. The rump SDP finished fourth at the Neath By-election in 1991, and they were to hold a number of council seats in Yorkshire and South Wales throughout the 1990s. However, the party is now to all intents and purposes extinct though a tiny number of activists and voters continue to support it.
It has been argued by some that the creation of the SDP led eventually to Tony Blair's movement of the Labour Party back towards the political centre, and the creation of New Labour. But those Labour moderates who remained in the party, such as Roy Hattersley, argue that the split in the centre-left both aided the Conservatives and delayed the move of the Labour Party to a centrist position. A number of former SDP officials now work as policy advisers to Tony Blair's government.