Why we should hope the UK loses its AAA rating

It would expose the myth that the market punishes higher borrowing.

As a drowning man clings to a life raft, so George Osborne clings to the UK's AAA credit rating as proof of his "credibility". When Standard & Poor's reaffirmed the UK's top rating last month, Osborne declared: "this is a reminder that despite the economic problems we face, the world has confidence that we are dealing with them".

But with the Chancellor now likely to break his golden debt rule, it's possible and even probable that at least one agency (Moody's and Fitch currently have the UK on "negative outlook") will remove our AAA rating in the near future. If Osborne is to be believed, this would be a disastrous blow to our economic credibility. But, as so often with the Chancellor, there's no evidence for this claim. The US, for instance, has seen no rise in its borrowing costs since losing its AAA rating a year ago today, indeed, its rates have fallen. All the evidence we have suggests that the market is prepared to lend to countries that can borrow in their own currencies, such as the US, the UK and Japan, and that enjoy the benefits of an independent monetary policy, regardless of their credit ratings or their debt levels (Japan's national debt is 211 per cent of GDP, while ours is 66 per cent, a reminder that we were never on the "brink of bankruptcy").

Now, as PoliticsHome points out, Danny Alexander has hinted that he knows as much. The Chief Secretary to the Treasury told the BBC:

The credit rating is not the be-all and end-all.

What matters is have we got the right policy mix for the country to get people back into work, to support economic growth, to deal with the huge problems in our public finances and the credit agencies reflect on those things and the ratings they give are a reflection of the credibility of that mix.

In fact, one could go further than Alexander and argue that the loss of our AAA rating would be a positive development. It would explode the myth that borrowing for growth (in the form of tax cuts and higher public spending) would lead to a bond market revolt and would strengthen the cause of those who argue that we shouldn't allow the agencies that rated Lehman Brothers as "safe", days before it filed for bankruptcy, to dictate our economic policy. It would also, of course, be a lethal blow to the political credibility of the current occupant of the Treasury. Osborne's deficit reduction plan was rooted in the need to preserve our AAA rating. If he fails in this task, why should voters trust him to do anything else?

Yet the loss of our AAA rating would finally liberate Osborne to pursue a plan that actually works. Once the belief that the market holds a veto on our borrowing levels is exposed as a myth, the Chancellor could finally stimulate growth through tax cuts and higher public spending. A growing economy could revive his reputation and that of his party. The path to redemption is open to Osborne. Unfortunately for the Tories, there is almost no chance of him taking it.

Chancellor George Osborne and Culture Secretary Jeremy Hunt watch the track cycling at the Olympics. Photograph: Getty Images.

George Eaton is political editor of the New Statesman.

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Leader: Mourning in Manchester

Yet another attack shows we are going to have to get to used to the idea that our liberalism and our freedoms can only be preserved by a strong state.

Children are murdered and maimed by a suicide bomber as they are leaving a pop concert in Manchester. As a consequence, the government raises the terror threat to “critical”, which implies that another attack is imminent, and the army is sent out on to the streets of our cities in an attempt to reassure and encourage all good citizens to carry on as normal. The general election campaign is suspended. Islamic State gleefully denounces the murdered and wounded as “crusaders” and “polytheists”.

Meanwhile, the usual questions are asked, as they are after each new Islamist terrorist atrocity. Why do they hate us so much? Have they no conscience or pity or sense of fellow feeling? We hear, too, the same platitudes: there is more that unites us than divides us, and so on. And so we wait for the next attack on innocent civilians, the next assault on the free and open society, the next demonstration that Islamism is the world’s most malignant and dangerous ideology.

The truth of the matter is that the Manchester suicide bomber, Salman Ramadan Abedi, was born and educated in Britain. He was 22 when he chose to end his own life. He had grown up among us: indeed, like the London bombers of 7 July 2005, you could call him, however reluctantly, one of us. The son of Libyan refugees, he supported Manchester United, studied business management at Salford University and worshipped at Didsbury Mosque. Yet he hated this country and its people so viscerally that he was prepared to blow himself up in an attempt to murder and wound as many of his fellow citizens as possible.

The Manchester massacre was an act of nihilism by a wicked man. It was also sadly inevitable. “The bomb was,” writes the Mancunian cultural commentator Stuart Maconie on page 26, “as far as we can guess, an attack on the fans of a young American woman and entertainer, on the frivolousness and foolishness and fun of young girlhood, on lipstick and dressing up and dancing, on ‘boyfs’ and ‘bezzies’ and all the other freedoms that so enrage the fanatics and contradict their idiot dogmas. Hatred of women is a smouldering core of their wider, deeper loathing for us. But to single out children feels like a new low of wickedness.”

We understand the geopolitical context for the atrocity. IS is under assault and in retreat in its former strongholds of Mosul and Raqqa. Instead of urging recruits to migrate to the “caliphate”, IS has been urging its sympathisers and operatives in Europe to carry out attacks in their countries of residence. As our contributing writer and terrorism expert, Shiraz Maher, explains on page 22, these attacks are considered to be acts of revenge by the foot soldiers and fellow-travellers of the caliphate. There have been Western interventions in Muslim lands and so, in their view, all civilians in Western countries are legitimate targets for retaliatory violence.

An ever-present threat of terrorism is the new reality of our lives in Europe. If these zealots can murder children at an Ariana Grande concert in Manchester, there is no action that they would not consider unconscionable. And in this country there are many thousands – perhaps even tens of thousands – who are in thrall to Islamist ideology. “Terror makes the new future possible,” the American Don DeLillo wrote in his novel Mao II, long before the al-Qaeda attacks of 11 September 2001. The main work of terrorists “involves mid-air explosions and crumbled buildings. This is the new tragic narrative.”

Immediately after the Paris attacks in November 2015, John Gray reminded us in these pages of how “peaceful coexistence is not the default condition of modern humankind”. We are going to have to get used to the idea that our liberalism and our freedoms can only be preserved by a strong state. “The progressive narrative in which freedom is advancing throughout the world has left liberal societies unaware of their fragility,” John Gray wrote. Liberals may not like it, but a strong state is the precondition of any civilised social order. Certain cherished freedoms may have to be compromised. This is the new tragic narrative.

This article first appeared in the 25 May 2017 issue of the New Statesman, Why Islamic State targets Britain

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