Magazine article New Statesman (1996)

The Chancellor's Policy Is Failing, Even on His Own Terms

Magazine article New Statesman (1996)

The Chancellor's Policy Is Failing, Even on His Own Terms

Article excerpt

When the UK's AAA credit rating was last placed on negative outlook in May 2009, George Osborne declared that the country's "economic reputation" was on the line. Now, our rating is again on negative outlook and it is the Chancellor's reputation that is at stake. In most of his public statements since the general election, Mr Osborne has presented the UK's credit rating as the ultimate metric of economic stability. Wiser heads warned him not to set so much store by the bodies that certified sub-prime mortgages as "safe" but the Chancellor, a relentless tactician, ignored their concerns.

In October 2010, when the UK was taken off negative watch by Standard & Poor's, he boasted of "a big vote of confidence in the UK and a vote of confidence in the coalition government's economic policies". On 29 November 2011, in his autumn statement, while announcing an extra [pounds sterling]158bn of borrowing, Mr Osborne claimed that, because of the coalition's "credible deficit plan", the UK was "the only major western country which has had its credit rating improve". By his own logic, therefore, his deficit reduction plan is no longer credible.

The loss of the UK's AAA credit rating is far from inevitable - Moody's puts the risk at 30 per cent in the next 18 months - and in any case a downgrade would not be economically calamitous. France and the United States have experienced little or no rise in their borrowing costs since losing their AAA ratings. Yet the possibility that the UK could lose its top rating is politically disastrous for Mr Osborne. Never again will he be able to boast that the UK is a "safe haven".

In its response to Moody's, the Treasury dwelt at length on the damage wreaked by the eurozone crisis. This convenient explanation does not account for why the UK is on negative watch while other EU nations, including Germany and Sweden, have had their top ratings affirmed. …

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