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 Executive - OTE £30,000+

£16000 - £30000 per annum: Recruitment Genius: They are looking for individual...

Recruitment Genius: IT Project Coordinator / Manager

£25000 - £40000 per annum: Recruitment Genius: A Project Coordinator is requir...

Recruitment Genius: Mortgage Advisor - OTE £95,000

£40000 - £95000 per annum: Recruitment Genius: This is an exciting opportunity...

Recruitment Genius: Trainee Vehicle Inspectors / Purchasers

£20000 - £40000 per annum: Recruitment Genius: Trainee Vehicle Inspectors / Pu...

Day In a Page

Read Next
The possibility of Corbyn winning has excited some Conservatives  

Labour leadership: The choice at the heart of the leadership campaign

Jeremy Corbyn
Pablo Iglesias, the leader of Spain’s anti-austerity party Podemos  

Greece debt crisis: Trouble is, if you help the Greeks, everyone will want the same favours

Charlotte McDonald-Gibson Charlotte McDonald-Gibson
Greece debt crisis: EU 'family' needs to forgive rather than punish an impoverished state

EU 'family' needs to forgive rather than punish an impoverished state

An outbreak of malaria in Greece four years ago helps us understand the crisis, says Robert Fisk
Gaza, a year on from Operation Protective Edge: The traumatised kibbutz on Israel's front line, still recovering from last summer's war with Hamas

Gaza, a year on from Operation Protective Edge

The traumatised kibbutz on Israel's front line, still recovering from last summer's war with Hamas
How to survive electrical storms: What are the chances of being hit by lightning?

Heavy weather

What are the chances of being hit by lightning?
World Bodypainting Festival 2015: Bizarre and brilliant photos celebrate 'the body as art'

World Bodypainting Festival 2015

Bizarre and brilliant photos celebrate 'the body as art'
alt-j: A private jet, a Mercury Prize and Latitude headliners

Don't call us nerds

Craig Mclean meets alt-j - the math-folk act who are flying high
How to find gold: The Californian badlands, digging out crevasses and sifting sludge

How to find gold

Steve Boggan finds himself in the Californian badlands, digging out crevasses and sifting sludge
Singing accents: From Herman's Hermits and David Bowie to Alesha Dixon

Not born in the USA

Lay off Alesha Dixon: songs sound better in US accents, even our national anthem
10 best balsamic vinegars

10 best balsamic vinegars

Drizzle it over salad, enjoy it with ciabatta, marinate vegetables, or use it to add depth to a sauce - this versatile staple is a cook's best friend
Wimbledon 2015: Brief glimpses of the old Venus but Williams sisters' epic wars belong to history

Brief glimpses of the old Venus but Williams sisters' epic wars belong to history

Serena dispatched her elder sister 6-4, 6-3 in eight minutes more than an hour
Greece says 'No': A night of huge celebrations in Athens as voters decisively back Tsipras and his anti-austerity stance in historic referendum

Greece referendum

Greeks say 'No' to austerity and plunge Europe into crisis
Ten years after the 7/7 terror attacks, is Britain an altered state?

7/7 bombings anniversary

Ten years after the terror attacks, is Britain an altered state?
Beautiful evening dresses are some of the loveliest Donatella has created

Versace haute couture review

Beautiful evening dresses are some of the loveliest Donatella has ever created
No hope and no jobs, so Gaza's young risk their lives, climb the fence and run for it

No hope and no jobs in Gaza

So the young risk their lives and run for it
Fashion apps: Retailers roll together shopping and social networking for mobile customers

Fashion apps

Retailers roll together shopping and social networking for mobile customers
The Greek referendum exposes a gaping hole at the heart of the European Union – its distinct lack of any genuine popular legitimacy

Gaping hole at the heart of the European Union

Treatment of Greece has shown up a lack of genuine legitimacy