Editorial: AAA loss is a sign of failure

Osborne made the mistake of cutting the deficit too sharply, and this stifled growth'

Share
Related Topics

Whatever else it may be, the downgrading by one agency of the UK's credit rating from AAA to AA1 is a mark of failure. The Conservative manifesto at the last election promised: "We will safeguard Britain's credit rating with a credible plan to eliminate the bulk of the structural deficit over a Parliament." That pledge now lies in small pieces, and the objective of eliminating most of the structural deficit has receded into the slightly snowy distance.

Whether the loss of a triple-A rating was partly caused by the Chancellor's policy, or whether it was the result mainly of unexpected sluggish growth in the eurozone, there can be no doubt that George Osborne did not intend to find himself in this position 33 months into his tenure of the Treasury. This newspaper agrees with the Shadow Chancellor that Mr Osborne made the mistake of cutting the deficit too sharply, and that this stifled consumption and investment and therefore growth. But there would have been risks in Labour's policy too of more inflation, and that the Government's credit rating would have been downgraded further and earlier, raising the cost of public borrowing.

In any case, that debate is becoming marginal. Mr Osborne has been forced by events to do much of what Mr Balls, and Alistair Darling before him, advocated, putting off the point at which the national debt starts to fall as a share of income. And, although Ed Balls said yesterday that borrowing more was "what I would do now", it is not what Labour will promise to do by 2015. Politically, it would be too hard to fight an election against a government that had failed to control borrowing by promising to borrow more. Such an argument will become ever harder to make if, as Hamish McRae argues today, the Moody's downgrade marks the start of a gradual increase in the cost of borrowing in the long run.

What matters now is what the Chancellor can do to crank up growth in the next couple of years. There are many sensible things that can be done, and Mr Osborne should try all of them. Perhaps the two most important are to get the banks to lend to businesses again, and to accelerate public-sector capital spending.

On the first, the temptation has been to wait for Mark Carney, who takes over as Governor of the Bank of England in June. However, if there are changes that could be made, they should be made straight away. Vince Cable, the Business Secretary, suggested last week that the Funding for Lending Scheme needed further work to ensure that new money went to small businesses. The scheme was launched last summer to use the Government's credit to underwrite new lending, and it has had some success in stimulating the housing market, but less of an impact on business lending.

As for capital investment, the London School of Economics Growth Commission recently published a "manifesto for growth", which emphasised the long-termism of higher educational standards and more research and development, but which also called for "investment in transport, telecommunications, energy and housing". Its authors pointed out that "UK investment is heavily skewed towards property and buildings rather than equipment, innovation and new technologies".

This bias needs to change, and the test of next month's Budget will be the extent to which Mr Osborne succeeds in changing it.

React Now

Latest stories from i100
iJobs Job Widget
iJobs General

Recruitment Genius: Sales Administrator - Spanish Speaking

£17000 - £21000 per annum: Recruitment Genius: This is a fantastic opportunity...

Recruitment Genius: Sales Administrator - German Speaking

£17000 - £23000 per annum: Recruitment Genius: This is a fantastic opportunity...

Recruitment Genius: Sales Administrator - Japanese Speaking

£17000 - £23000 per annum: Recruitment Genius: If you are fluent in Japanese a...

Recruitment Genius: Graphic Designer - Immediate Start

£16000 - £25000 per annum: Recruitment Genius: This is a fantastic opportunity...

Day In a Page

Read Next
 

Errors & Omissions: Hang on – that’s not how it’s supposed to be written

Guy Keleny
Rafael Nadal is down and out, beaten by Dustin Brown at Wimbledon – but an era is not thereby ended  

Sad as it is, Rafael Nadal's decline does not mark the end of tennis's golden era

Tom Peck
Is this the future of flying: battery-powered planes made of plastic, and without flight decks?

Is this the future of flying?

Battery-powered planes made of plastic, and without flight decks
Isis are barbarians – but the Caliphate is a dream at the heart of all Muslim traditions

Isis are barbarians

but the Caliphate is an ancient Muslim ideal
The Brink's-Mat curse strikes again: three tons of stolen gold that brought only grief

Curse of Brink's Mat strikes again

Death of John 'Goldfinger' Palmer the latest killing related to 1983 heist
Greece debt crisis: 'The ministers talk to us about miracles' – why Greeks are cynical ahead of the bailout referendum

'The ministers talk to us about miracles'

Why Greeks are cynical ahead of the bailout referendum
Call of the wild: How science is learning to decode the way animals communicate

Call of the wild

How science is learning to decode the way animals communicate
Greece debt crisis: What happened to democracy when it’s a case of 'Vote Yes or else'?

'The economic collapse has happened. What is at risk now is democracy...'

If it doesn’t work in Europe, how is it supposed to work in India or the Middle East, asks Robert Fisk
The science of swearing: What lies behind the use of four-letter words?

The science of swearing

What lies behind the use of four-letter words?
The Real Stories of Migrant Britain: Clive fled from Zimbabwe - now it won't have him back

The Real Stories of Migrant Britain

Clive fled from Zimbabwe - now it won’t have him back
Africa on the menu: Three foodie friends want to popularise dishes from the continent

Africa on the menu

Three foodie friends want to popularise dishes from the hot new continent
Donna Karan is stepping down after 30 years - so who will fill the DKNY creator's boots?

Who will fill Donna Karan's boots?

The designer is stepping down as Chief Designer of DKNY after 30 years. Alexander Fury looks back at the career of 'America's Chanel'
10 best statement lightbulbs

10 best statement lightbulbs

Dare to bare with some out-of-the-ordinary illumination
Wimbledon 2015: Heather Watson - 'I had Serena's poster on my wall – now I'm playing her'

Heather Watson: 'I had Serena's poster on my wall – now I'm playing her'

Briton pumped up for dream meeting with world No 1
Wimbledon 2015: Nick Bollettieri - It's time for big John Isner to produce the goods to go with his thumping serve

Nick Bollettieri's Wimbledon Files

It's time for big John Isner to produce the goods to go with his thumping serve
Dustin Brown: Who is the tennis player who knocked Rafael Nadal out of Wimbeldon 2015?

Dustin Brown

Who is the German player that knocked Nadal out of Wimbeldon 2015?
Ashes 2015: Damien Martyn - 'England are fired up again, just like in 2005...'

Damien Martyn: 'England are fired up again, just like in 2005...'

Australian veteran of that Ashes series, believes the hosts' may become unstoppable if they win the first Test