For Ed Balls this morning, there is only one conclusion to be drawn from the news about our credit rating: ‘A change of course is needed.’ But to what?
Balls no doubt means a shallower course of deficit reduction — less far, less fast. But Moody’s are clear that we have been placed on a negative outlook because of doubts that our
fiscal consolidation will continue strongly enough. Specifically, they say that, ‘Any further abrupt economic or fiscal deterioration would put into question the government’s ability to place
the debt burden on a downward trajectory by fiscal year 2015-16.’
So how would Labour have fared? We already know that they didn’t propose to put debt on a downwards trajectory back then (see my post here). But it would have been even worse in reality. In
their recent Green Budget, the IFS actually put Alistair Darling’s plan through their calculators, and accounted for the economic
situation since. This is what they came up with:
‘All things considered, it seems likely that, in the absence of the additional fiscal tightening announced since the general election, borrowing would have been on course to be closer
to £76 billion in 2016–17 than to the £26 billion that was forecast in the March 2010 Budget.’
Which is to say, even more borrowing — and even more debt. As I said in an quick update to my post last night, ‘Labour plans would probably have lost us our AAA rating
Of course, Labour will argue that their plan for slower deficit reduction would have boosted growth, which would have improved the debt position, which would have pleased the credit rating
agencies, etc, etc. But it’s worth remembering that, before the election, S&P justified keeping us on
negative watch, and warned that we could lose our AAA rating, precisely because the Darling Plan didn’t put debt on a downwards trajectory. ‘Additional spending measures will likely be
required to put the public debt burden on a clear downward trajectory later in the current decade,’ is how they put it then. And that was when growth forecasts were much more optimistic than
they are now.
Labour might, and probably would have, changed their plans had they won the election. But this is the point: when Balls talks about a ‘change of course’, he’s disregarding the fact that
Labour would probably have had to change their course too. Anything other than faster and further would surely have had the credit rating agencies swooping.
Or, of course, they could have just ignored the credit rating agencies — but that’s not what they’re saying George Osborne should do this morning.