Tuesday, 26 February 2013

Downgraded to AA1 – what’s it stand for?*

With thanks to Joe C.
It’s all been said – but not everybody’s said it.  So here goes.

On Friday, the ratings agency Moody’s decided that the country’s growth prospects were so poor that the AAA credit rating should be downgraded.   As almost every commentator has pointed out, preserving the credit rating has been cited on many occasions by Osborne as the acid test of his economic policy.  In 2010 he said ‘Our first benchmark is to cut the deficit more quickly to safeguard Britain’s credit rating… we will protect Britain’s credit rating.’

And are we likely to see any changes from Osborne now that his ‘first benchmark’ has failed? In brief, no: he has assured us that the downgrading confirms that his approach is right, so he'll carry on with the austerity programme.  Osborne’s behaving like a mediaeval blood-letting physician: “We drew a pint of blood from the patient but he’s not recovered yet so we'll just draw a few more pints…’

Anyone who knows me (or who has read any of the earlier posts) won’t be surprised that an old Leftie should think the Chancellor’s got it massively wrong.  But I'm not alone.  Others, not best known for their left-wing views (unless they are the best-disguised Entrists since the Militant Tendency) agree with me.  Those urging a change of tack include:
  • The Daily Telegraph: One last chance to go for growth - Telegraph – an editorial opened bluntly by saying ‘The Coalition’s economic policy is not working.’
  • The CBI – last summer the Director General strongly criticised the government for the “really disappointing” implementation of its growth plan
  • The IMF – until recently a (somewhat half-hearted) support of the austerity package, whose chief economist said in January:  "We said that if things look bad at the beginning of 2013 – which they do – then there should be a reassessment of fiscal policy."

It’s not clear that anything will persuade Osborne not only that the policy isn’t working, but that it’s actually making it harder to reduce the deficit.  There was an interesting analysis recently by the Resolution Foundation (Squeezed Britain). They calculated that if all public sector workers’ pay were raised to the Living Wage standard, it could result in a net saving of £2.2 billion – because of increased income tax receipts and reduced benefit payments.  And as those receiving the extra money are still on low incomes and are therefore unlikely to save a great deal, it would go straight into the economy buying goods and services and of course, generating extra VAT. 

If the Resolution Foundation is correct this seems a sensible course of action. But it won’t happen under this government because that would mean George admitting he is wrong – and it seems that won’t happen anytime soon.

*Oh by the way, it stands for Arseholes Anonymous.

"My name's George and I'm an arsehole."