By his own standards, Ed Balls has been relatively restrained in heaping calumny on George Osborne, following the news that Moody’s, the ratings agency, is to downgrade Britain from AAA its highest tier of creditworthiness to AA1.
Perhaps this was because the statement in which the agency justified its action will have made even less comfortable reading for the shadow chancellor than his opposite number. It blamed, first, the slow growth of the global economy something beyond either man’s power and second, “the drag on the UK economy from the ongoing domestic public- and private-sector deleveraging process”. In layman’s terms, this means that the economy is still struggling to cope with the hideous legacy left by Labour, in particular the ruined state in which it left the public finances. The report also makes it clear that the only reason Britain’s credit outlook is stable rather than negative is because Moody’s believes that the Coalition retains the political will to see through its deficit reduction programme something few would expect Mr Balls to prioritise, given his long history of spending more, borrowing more and taxing more.
All the same, the damage to Mr Osborne is more than merely symbolic. Even though the reputations of the ratings agencies were grievously damaged by their part in the sub-prime mortgage fiasco, he made the maintenance of the triple-A rating a cornerstone of his strategy, and his credibility. This despite the fact that it has long been apparent that the Government’s economic approach was not working or rather, was not working fast enough. With growth stubbornly low, and borrowing alarmingly high, a downgrade was only ever a matter of time.
But what should the Chancellor’s response be? Not to retreat from deficit reduction: as Moody’s makes clear, that would be utterly self-defeating (and leave the country perilously placed in the event of another economic shock). But while Mr Osborne’s room for manoeuvre is limited, it is not so limited as he appears to believe. All the signs are that he will next month deliver a steady-as-she-goes Budget, in the hope that the green shoots that are slowly becoming visible in terms of job creation and company formation will blossom into life. We urge him to be rather more vigorous in clearing the weeds from Britain’s economic garden by cutting back regulation, stimulating the economy via significant cuts to corporate and personal taxation, and if necessary appeasing the bean-counters by balancing this with a more drastic pruning back of the state. The current approach is a recipe for muddling through, not for the recovery for which the country is crying out.