George Osborne defends cuts despite credit rating threat

 

Chancellor George Osborne defended the Government's austerity package today after Britain was threatened with the loss of its AAA credit rating amid fears over weaker growth prospects and potential shocks from the eurozone crisis.

Ratings agency Moody's put the UK on “negative outlook” last night, increasing the chance of the country being stripped of its cherished status.

Shadow chancellor Ed Balls said the move was “a significant warning” and urged the Government to spark economic growth, but Mr Osborne said it was “a reality check for anyone who thinks Britain can duck confronting its debts”.

The Chancellor told BBC Radio 4's Today programme: “We can't waver in the path of dealing with our debts and here is yet another organisation warning Britain that if we spend or borrow too much we are going to lose our credit rating but, more importantly, what that leads to potentially is a loss of investor confidence in our economy.

“If people don't invest in our economy, you don't get growth and you don't get jobs.

“It's yet another reminder Britain doesn't have some easy route out of the economic problems that have accumulated over the past decade, it's got to confront those problems head-on and that's precisely what I intend to do.”

Moody's said it foresaw three main risks to the UK's top rating, the first being a combination of slow growth with “reduced political commitment to fiscal consolidation” or a “failure to respond” to worsening conditions.

Other dangers were “a sharp rise in debt-refinancing costs, possibly associated with an inflation shock or a deterioration in market confidence over a sustained period” or a fresh crisis in the banking sector.

The AAA rating “continues to be well supported by a large, diversified and highly competitive economy, a particularly flexible labour market, and a banking sector that compares favourably to peers in the euro area”, it noted.

Significant structural reforms meant the economy was expected to return to 2.5% trend growth rate even if more slowly than previously anticipated, Moody's said.

It added: “Although Moody's sees rising challenges in achieving debt reduction within the timeframe that has been laid out by the Government, not least the possible impact of any future cutbacks on short-term growth, the rating agency believes the UK Government's response to negative developments late last year indicates its commitment to restoring a sustainable debt position.

“This suggests the UK's track record of reversing increases in debt is likely to continue going forward.”

Mr Osborne admitted the UK's weaker growth prospects were "a challenge", but denied he had "abandoned growth".

He added: "If you don't have confidence in a country's ability to pay its debts - as you have seen with plenty of other European countries - then you get negative growth, rising unemployment and no prospect of recovery.

"I don't see this false choice between growth and dealing with your debts. If you don't deal with you debts, you will not have growth."

He said Moody's statement was "the clearest possible warning" that scrapping or slowing deficit reduction would lead to "an immediate downgrade" of Britain's rating.

Mr Balls described the agency's move as "a significant warning" and urged the Government to spark economic growth.

He said: "Moody's is clear in its statement that the primary reason for Britain's negative outlook is 'weaker growth prospects' which are making it harder to get the deficit down.

"With our economy now in reverse, unemployment at a 17-year high and £158 billion extra borrowing to pay for economic failure, the case for a change of course and a real plan for jobs and growth is growing by the day."

Mr Balls told Today that governments' deficits needed to be slashed, but added: "That means tough decisions but unless you've got growth, if your plan is unbalanced, it becomes self-defeating and today is the first evidence that even the ratings agencies are waking up to the fact George Osborne's plan's not working."

He said ratings agencies' statements were "a weather vane" showing "which way the wind is blowing".

The countries which saw their credit rating downgraded by Moody's were Italy, Malta, Portugal, Slovakia, Slovenia and Spain.

It came as the Greek government was challenged by the EU to "sell" its latest austerity deal to the public and end a "spiral of unsustainable finances" after rioters wreaked havoc on the streets of Athens in response to more cuts.

Mr Osborne also insisted that the coalition was "pro-business" despite the row which led to RBS chief executive Stephen Hester giving up his annual bonus and the bank's former boss Fred Goodwin being stripped of his knighthood.

"We are a pro-business Government, we are cutting business taxes in order to make Britain an attractive place to start a business, run a business and employ people," said the Chancellor.

"A fundamental part of the free market is that, yes, you get rewards for success - and we encourage that in Britain and not an anti-business culture - but also there shouldn't be rewards for failure and if businesses fail, including banks, they should go bust."

He added: "We draw a distinction between sorting out the mess in the banking system and this relentless attack on anyone who makes any money out of a successful business and out of successfully employing people.

"That is dangerous for Britain because it will mean people are put off coming here and setting up businesses."

PA

Life and Style
life
News
Brad Pitt and Angelina Jolie reportedly married in secret on Saturday
peopleSpokesperson for couple confirms they tied the knot on Saturday after almost a decade together
Life and Style
Chen Mao recovers in BK Hospital, Seoul
health
News
Joan Rivers has reportedly been hospitalised after she stopped breathing during surgery
people81-year-old 'stopped breathing' during vocal chord surgery
PROMOTED VIDEO
Have you tried new the Independent Digital Edition apps?
News
ebooksAn evocation of the conflict through the eyes of those who lived through it
Arts and Entertainment
tv
News
i100
Arts and Entertainment
Diana from the Great British Bake Off 2014
tvProducers confirm contestant left because of illness
Arts and Entertainment
Lisa Kudrow, Courtney Cox and Jennifer Anniston reunite for a mini Friends sketch on Jimmy Kimmel Live
tv
Life and Style
fashion

Independent
Travel Shop
the manor
Up to 70% off luxury travel
on city breaks Find out more
santorini
Up to 70% off luxury travel
on chic beach resorts Find out more
sardina foodie
Up to 70% off luxury travel
on country retreats Find out more
Latest stories from i100
Have you tried new the Independent Digital Edition apps?
Independent Dating
and  

By clicking 'Search' you
are agreeing to our
Terms of Use.

iJobs Job Widget
iJobs General

Client-Side web developer (JQuery, Javascript, UI, JMX, FIX)

Negotiable: Harrington Starr: Client-Side web developer (JQuery, Javascript, U...

Structured Finance

Highly Competitive Salary: Austen Lloyd: CITY - An excellent new instruction w...

SQL Server Developer

£500 per day: Harrington Starr: SQL Server Developer SQL, PHP, C#, Real Time,...

C#.NET Developer

£600 per day: Harrington Starr: C#.NET Developer C#, Win Forms, WPF, WCF, MVVM...

Day In a Page

Ukraine crisis: The phoney war is over as Russian troops and armour pour across the border

The phoney war is over

Russian troops and armour pour into Ukraine
Potatoes could be off the menu as crop pests threaten UK

Potatoes could be off the menu as crop pests threaten UK

The world’s entire food system is under attack - and Britain is most at risk, according to a new study
Gangnam smile: why the Chinese are flocking to South Korea to buy a new face

Gangnam smile: why the Chinese are flocking to South Korea to buy a new face

Seoul's plastic surgery industry is booming thanks to the popularity of the K-Pop look
From Mozart to Orson Welles: Creative geniuses who peaked too soon

Creative geniuses who peaked too soon

After the death of Sandy Wilson, 90, who wrote his only hit musical in his twenties, John Walsh wonders what it's like to peak too soon and go on to live a life more ordinary
Caught in the crossfire of a cyber Cold War

Caught in the crossfire of a cyber Cold War

Fears are mounting that Vladimir Putin has instructed hackers to target banks like JP Morgan
Salomé's feminine wiles have inspired writers, painters and musicians for 2,000 years

Salomé: A head for seduction

Salomé's feminine wiles have inspired writers, painters and musicians for 2,000 years. Now audiences can meet the Biblical femme fatale in two new stage and screen projects
From Bram Stoker to Stanley Kubrick, the British Library's latest exhibition celebrates all things Gothic

British Library celebrates all things Gothic

Forthcoming exhibition Terror and Wonder: The Gothic Imagination will be the UK's largest ever celebration of Gothic literature
The Hard Rock Café's owners are embroiled in a bitter legal dispute - but is the restaurant chain worth fighting for?

Is the Hard Rock Café worth fighting for?

The restaurant chain's owners are currently embroiled in a bitter legal dispute
Caribbean cuisine is becoming increasingly popular in the UK ... and there's more to it than jerk chicken at carnival

In search of Caribbean soul food

Caribbean cuisine is becoming increasingly popular in the UK ... and there's more to it than jerk chicken at carnival
11 best face powders

11 best face powders

Sweep away shiny skin with our pick of the best pressed and loose powder bases
England vs Norway: Roy Hodgson's hands tied by exploding top flight

Roy Hodgson's hands tied by exploding top flight

Lack of Englishmen at leading Premier League clubs leaves manager hamstrung
Angel Di Maria and Cristiano Ronaldo: A tale of two Manchester United No 7s

Di Maria and Ronaldo: A tale of two Manchester United No 7s

They both inherited the iconic shirt at Old Trafford, but the £59.7m new boy is joining a club in a very different state
Israel-Gaza conflict: No victory for Israel despite weeks of death and devastation

Robert Fisk: No victory for Israel despite weeks of devastation

Palestinians have won: they are still in Gaza, and Hamas is still there
Mary Beard writes character reference for Twitter troll who called her a 'slut'

Unlikely friends: Mary Beard and the troll who called her a ‘filthy old slut’

The Cambridge University classicist even wrote the student a character reference
America’s new apartheid: Prosperous white districts are choosing to break away from black cities and go it alone

America’s new apartheid

Prosperous white districts are choosing to break away from black cities and go it alone