August 1939: As war fast approaches, both Britain and Germany vie for an alliance with the Soviet Union. In Hallam’s opinion, Britain has wrecked its chances by sending a low-level emissary, Admiral Plunkett-Ernle-Erle-Drax, mockingly known in the Foreign Office as “Admiral Acronym.” Hallam confides this little joke to his secret lover—Persie.
Things have gone from bad to worse at 165 Eaton Place. Suspecting that Hallam no longer loves her, Agnes takes the excuse of impending war to evacuate with the children to the countryside, giving her husband a last chance to beg her to stay, which he neglects to do. Nevertheless, the sight of his family driving away makes Hallam realize that he has made a dreadful mistake in getting involved with his sister-in-law.
Lipstick-stained shirts and midday hotel visits alert the servants that their master is pursuing more than foreign affairs, but their minds are elsewhere. Harry and Beryl are newly engaged and have dreams of emigrating to America. The rest of the downstairs staff are preparing for the city-wide servants’ ball, organized by a distinguished committee that includes Mr. Pritchard.
Another committee member is a demure lady’s maid, Miss Whisset, with whom Pritchard forms a fast friendship. He takes her to one of the year’s hit movies, Love Affair, starring Irene Dunne and Charles Boyer, and in a sign of his serious intentions, he invites her to dinner at the servants’ quarters at 165 Eaton Place.
Meanwhile, Persie responds to Beryl’s engagement announcement with a diabolical wedding gift: the very silk dressing gown that Persie wore to her tryst with Harry last season. Beryl knows nothing of Harry’s fling, and when she comes to his room in the dark, wrapped in the beautiful robe, he’s confused. “Persie?!” he says, giving the game away. After that, his only hope for winning Beryl back is to take her to California, which will cost 100 guineas—a small fortune for a chauffeur.
The night of the ball is a climax for all concerned. The party-loving Duke of Kent takes a turn on the dance floor with Miss Whisset. Then he coerces his old school chum Hallam into getting drunk. But before they do, Kent mentions that the German ambassador is touting his country’s new alliance with Stalin by lampooning “Admiral Acronym.” But how could the ambassador know this nickname? While Hallam is thinking it over, Persie is visiting Nazi diplomats in their hotel suite on the other side of London.
Growing increasingly depressed, Hallam leaves the ball and is accosted by Harry, who has hit on a strategy for getting 100 guineas. “You know what a scandal like this would do to your family,” the chauffeur says, threatening to spill the beans about Persie. “Your own sister-in-law! You have to admit, that is pretty low.” Infuriated but defeated, Hallam agrees to the blackmail.
Back at the ball, Pritchard and Miss Whisset enjoy a sober but soulful evening together. But when Miss Whisset is chatting with Mrs. Thackeray, the tipsy cook babbles about what a good man Pritchard is, even if he was a conscientious objector in the last war. This is too much for the very patriotic Miss Whisset, who immediately lets the butler know that he is not the man she thought.
Jilted, Pritchard drowns his sorrows and turns up the next morning, hopelessly drunk outside 165 Eaton Place. Agnes, who has returned unannounced, finds him. What else will she find?