Coffee House

AAA credit rating: George Osborne gives Labour a (revisionist) history lesson

25 February 2013

5:31 PM

25 February 2013

5:31 PM

George Osborne was playing historian today as he responded to Ed Balls’ urgent question on the credit rating downgrade, charting Labour’s role in the UK’s loss of the AAA rating; particularly the deficit it bequeathed the Coalition. But he was in revisionist mood when it came to his own stance. As Ed Balls repeatedly leant across the despatch box and tried to hand the Chancellor a copy of the Tory 2010 manifesto in which the party lists ‘we will safeguard Britain’s credit rating’ as the first of its eight benchmarks, George Osborne told MPs that what he had always said was important was the confidence of the markets.

MPs were largely in a tribal mood. Ed Balls had a good turn of phrase on the downgrade:

‘He has gone in a weekend from saying he must stick to his plan to avoid a downgrade, to saying the downgrade is now the reason he must stick to his plan. He used to say a downgrade would be a disaster, today he says this downgrade doesn’t matter – but he is still warning a further downgrade really would be a disaster.’


Pat McFadden, meanwhile, had a neat jokey question, asking ‘does the Chancellor agree with himself’ that losing the AAA would be a humiliation? Tory backbenchers dutifully howled and pointed at Labour at key moments, shouting ‘apologise’ at Balls as he started his Urgent Question. Some of their loyal questions were more effective than others. Claire Perry, never knowingly unenthusiastic, reminded the Chamber that Britain still retains its AAA rating with other ratings agency, perhaps forgetting in her excitement that Standard & Poor’s and Fitch are expected to follow Moody’s in the next few months.

Most of the fight was just that: a grumpy little scrap and not particularly edifying. Ed Balls focused on Osborne being humiliated, and Osborne focused on Balls’ commitment to even higher borrowing and his dearth of concrete economic policies. There were even some jokes about songs that summed up the economy. What did we learn? Nothing at all, not about the Coalition’s policies or about Labour’s.

The Chancellor will have been heartened, though, by the overall support he received from Tory MPs. They were clearly enjoying his confident response: the Chancellor is often accused of arrogance, but a little self-assurance goes a long way when your back is up against the wall.

There was just the slightest hint of what the Chancellor is facing from his own backbenchers, which came from Philip Davies. Davies told the Chancellor the economy needed ‘proper tax cuts’. And this afternoon, Brian Binley, who did not speak in the debate, released a statement calling for a ‘far more nuanced and sophisticated approach than other Budgets have delivered to date’. After Adam Afriyie’s unapologetic piece in the Mail on Sunday yesterday (and I understand that we have by no means heard the last of Afriyie), expect to hear many more calls on the Chancellor to be ‘bold’.

Subscribe to The Spectator today for a quality of argument not found in any other publication. Get more Spectator for less – just £12 for 12 issues.

Show comments
  • Hexhamgeezer

    This is pathetic.

    Osborne is either a moron or a liar if he thinks his tinkering with the economy, his feeble window dressing, is going to produce consistent growth. And Balls is a monumental shyte for whingeing about this after the devastation he and his lunatic bosses wreaked on the economy.

    Westminster Bubble Bollox while the country slowly falls apart.

  • paulus

    Well that wasnt very nice having a run on the pound, it isn’t us living under a tinder keg it is you, try and fuck us and it will be you who will be turning tricks for coins when your railed out onto the street

  • alabenn

    This article does not begin to reflect how badly Balls handled his brief.
    Most journalists nowadays genuflect to the BBC’s views on most political policies, after all they are the biggest employer in MSM.
    No point in having a reputation for independent thought on your CV, might not help at interviews.

  • pigou_a

    Osborne has to go.

    Does Osborne expect these pathetic attempts to spin away his culpability to work? They are utterly risible.

    His puerile understanding of economics is catastrophic for the country and for the Tory party. How many inept decisions does this clown need to make before our MPs put him out of his misery?

    Anthony Wells has the Tories 11 points down. Electoral calculus is predicting 83 Tory losses at the next election. Does any one see that changing soon?

    If the Tories want any chance at the next election, Osborne has to go immediately.

    Every hour our MPs delay getting rid of Osborne cements Miliband’s chances of getting in.

    • Colonel Mustard

      Are you still here? I thought you were going to emigrate.

  • Gerry Boy

    Why does Spectator CH print this Conservative Central Office propaganda?

    • Colonel Mustard

      To get up the noses of Labour Central Office trolls like you. It’s a bit like rubbing the right’s nose in diversity – a tribal thing.

    • Mike Barnes

      Because nobody else will?

  • Alcuin Bramerton

    I understand that the trigger for Moody’s reducing the UK’s credit rating from AAA
    to AA1 at this particular time was that the UK has just started direct forex dealings between the Pound and the Chinese Renminbi against the wishes of the US-EU banking syndicate.

    Australia has, of course, been doing this for some time in connection with its mineral
    mining deals with China.

    • Tom Tom

      What was S&P’s reason for timing the US downgrade in 2011 ?

      • the viceroy’s gin

        They couldn’t deal sternly with anybody else, unless the US got nicked, so they had to go first. But it could never mean much in reality, because Zimbabwe Ben’s printing presses are always up to the task of printing fresh bales of cash.

        • Tom Tom

          I used to wonder why the IMF didn’t toddle across DC when Reagan was in office running deficits galore but then again the IMF is a branch of the US Treasury

          • the viceroy’s gin

            Well, Reagan was running 4-6% deficits, as a percentage of GDP. And the Fed wasn’t printing monopoly money at that time, so those were real percentages. Today, the deficits have been running double those numbers, and the Fed is buying that debt with monopoly money. It’s really apples and oranges, not that 4-6% deficits are good, mind you.


  • Russell

    Balls, McFadden and all but one of labours ‘questions’ (which Osborne acknowledged as a good and relevant question) was pathetic political posturing which failed massively. Osborne trounced Balls and all other labour MP’s jibes, and explained clearly that the downgrading from 3 to 2 an a bit makes no difference as long as the borrowing rate remains at historic low rates, which it does.

    Balls has no answers, no alternative (apart from borrow £billions more and seeing the borrowing rate go up, increasing the deficit and thereby the debt mountain).
    One of Osbornes rare excellent performances.

    • Tom Tom

      Balls has his track record as his best asset………the rest of us discount it heavily

    • Mike Barnes

      So if the downgrade makes no difference whatsoever (which it doesn’t) why did Osborne spend the last 3 years safeguarding it, mentioning it at every opportunity, putting it in his manifesto etc.

      I mean surely Osborne knew it was meaningless and was just, how did you put it, “pathetic political posturing which failed massively.”

      • Tom Tom

        I don’t think Osborne knew it was meaningless. Osborne knows nothing

      • Russell

        I agree, Osborne was very foolish to keep repeating the AAA theme, perhaps if he had any sense he would have stuck to the fact that the interest rates charged to the UK were almost the lowest in the world, lowest in UK history etc. and when the USA and France were downgraded also had an opportunity to say AAA was not the critical measure, but the interest rate charged for borrowing. Osborne had never served in government office when he made the initial AAA claims and was very naive/inexperienced.

  • Thatcherite Lee

    He was on a bad wicket but managed to bat his way through in my view. Balls continues to waffle the same nonesense that we can somehow drink ourselves sober which is why I believe the downgrade will not be as damaging to Osborne as the media are making out.

    • Gareth

      If you think it’s nonsense, try explaining the view held by many Tory backbenchers that the best way to tackle the deficit is by making tax cuts. You’ll find it’s the same logic.

      • El_Sid

        Look up Laffer. One example is what’s been happening in the North Sea lately.- see

        Under Gordon Brown the UK got a really bad reputation for whimsical fidlling with the tax regime that is a critical part of the investment decision. Capital in the oil industry is very mobile, and can soon head to other countries if the numbers don’t add up – it is pretty telling that companies such as BP were selling up in the UK to invest in places like (communist) Vietnam, in part because the fiscal regime was much more stable. Osborne finally saw the light and the result has been a boom in investment which will ultimately lead to high tax revenues.

        • Gareth

          Yes, that’s a good explanation. My point was that both lines of argument are initially counter-intuitive: if you cut the tax rate, ceteris paribus, the amount of tax revenue would decrease. The reason why this may not be the case is because people and firms change their behaviour in response to the change in tax regime, and it may be more productive to have a lower rate.

          But it’s the same logic that applies to austerity: making cuts to public spending give rise to other changes in behaviour, most notably that those people who no longer have a job in the public sector will tend to draw unemployment benefit, no longer pay Income Tax, and no longer spend money they no longer haven. The same is true for companies which no longer receive orders from the public sector: they have less to contribute to the economy and to tax revenues. In the long run, people will find new jobs, and companies win new orders. But austerity can only happen at the rate at which these transitions take place. It cannot be rushed.

          • Tom Tom

            Cuts in public spending are organised by the Bureaucracy to cut headcount at the sharp end rather than affect the Costs of Bureaucracy. You could reduce the need to ask for Ethnicity on every form if you repealed Labour legislation; you could reduce Common Purpose Conferences; you could cut out Company Cars for NHS Managers and make them buy their own like doctors do. You could cut out Frst Class rail travel and expensed meals. You could stop School Taxis and save millions. You could tighten Procurement to stop sweetheart deals. You could put House of Commons restaurants onto market prices

            • the baracus

              These are all valid points and would save millions. the problem is we need to save Billions. I agree your suggestions need to be implemented, if nothing else then to set an example, but the biggest hole in funds is the unaffordable welfare state.

            • Gareth

              I think your examples are in interesting illustration of what is involved in making public sector cuts, particularly your proposal to remove equal opportunities monitoring from public sector recruitment procedures. One of the criticisms I level at the New labour approach to legislation is that while many of its initiatives held the potential to be helpful in some way, they often failed to take account of the workload implications (I speak particularly as a former Primary School Teacher here). In this case, it strikes me as a balance between achieving a more diverse public sector and the HR costs involved. Although it should be borne in mind that in certain areas, not least the Metropolitan Police, increasing diversity is important to the effective functioning of the service.

              Other suggestions, such as removing company cars, are effectively changes to employees remuneration packages and are along the same lines as changes to pension entitlements and direct pay cuts. As wages form a significant proportion of costs for public sector organisations, these are likely to be an effective way of reducing expenditure. However, you get what you pay for, not least in terms of the calibre of personnel. It’s often the same people who argue for wage cuts who complain about the performance of public services. Personally, I would rather have a well managed NHS than cut price, inefficient health provision.

              As for first class rail travel and meals, I agree!

          • El_Sid

            One difference is that tax cuts can bring in overseas capital that would not otherwise be deployed in the UK – the oil business is a great example of that. What that means is that there’s a great multiplier effect – £100m of tax cuts can see £500m invested in the economy that wouldn’t be deployed otherwise.
            Conversely spending on government employees doesn’t bring much new capital in, so the multiplier effect is far more limited. Yes, they’re no longer paying tax, but they still don’t pay more in tax than they get paid! Average FT public employee is paid a median £28,930 (per Table 13.7a, ONS Annual Survey of Hours and Earnings 2012 provisional) so they are paying £4,165 income tax and £2,604 NI, 23.4% of salary. That’s less than 100% of salary….
            You cite the worst case when they are left unemployed – but that’s far less of an issue when the private sector is recruiting heavily, as now. The private sector has more than made up losses in the public sector since 2010, so that’s no net increase in dole paid, changes in tax and benefits will be non-zero but insignificant compared to the public sector reducing the big costs associated with employing someone, which can be anything up to £200k/person, depending on what kind of job it is. Some are quick savings, reductions in eg office space take longer, but the long-term savings are much bigger than you think. Plus those people’s skills are now available to the private sector.
            Compare Gordon Brown’s pre-election VAT cut. It put £12.4bn on the national debt long-term. Current 30-year gilt rate is 3.29%, so £408m is currently being sucked out of the public finances every year just to pay for that one-off VAT cut years ago, which made no difference to 88% of consumers and which had no lasting impact.
            That kind of logic really makes you think about what we should be spending Beijing’s money on. It has to be stuff which adds lasting value to UK plc, and to HMG in particular, with an emphasis on helping the UK pay its way in the global economy. Improving skills is a good thing, but it’s more about training plumbers to replace Poles than dishing out meeja studies degrees. Every therm of gas saved is one less that doesn’t have to be imported from Qatar via Hormuz, so encouraging energy efficiency and reducing the net energy consumption of buildings is a Good Thing in all sorts of ways. Shame the coalition screwed up the Green Deal so badly. Subbing the rollout of fibre broadband to areas that are otherwise uneconomic would cost about £4bn and not only be good for the economy, but allow cost cuts as more services could be put online.

    • huktra

      Oh no? Osborne hooked his credibilty on the rating. He has failed to reduce the deficit. He has failed to give us growth.
      Now Moody’s and Lagarde are gunning for him.
      He is finished personally and the credibilty of his government is gone.

      • HJ777

        In what way is your statement that “he has failed to reduce the deficit” consistent with the fact that he has reduced the deficit he inherited by a quarter (which the figures clearly show that he has)?

    • kyalami

      “drink ourselves sober”.


  • agent zigzag

    wonga balls got a mauling