Osborne hoisted with his own petard

With Britain's credit rating on negative outlook, the Chancellor's reputation is on the line.

So much for George Osborne's claim that the UK is a "safe haven". Moody's decision to place Britain's AAA credit rating on "negative" watch explodes the Chancellor's delusions. There is now roughly a 30 per cent chance that the UK's credit rating will be downgraded in the next 18 months. Given that Osborne chose to make our credit rating the ultimate metric of economic stability, this is, to put it mildly, politically awkward for him.

Just ten weeks ago, in his autumn statement, while announcing that the UK would borrow £158bn more than forecast a year ago, Osborne boasted that "we are the only major western country which has had its credit rating improve" (i.e. come off negative outlook). He said:

Last April, the absence of a credible deficit plan meant our country's credit rating was on negative outlook and our market interest rates were higher than Italy's.

By his own logic, therefore, his deficit plan is no longer credible. When Britain was first put on negative outlook by Standard & Poor's (S&P) in May 2009, Osborne declared:

It's now clear that Britain's economic reputation is on the line at the next general election, another reason for bringing the date forward and having that election now ... For the first time since these ratings began in 1978, the outlook for British debt has been downgraded from stable to negative.

And when the UK was taken off negative watch by S&P in October 2010, he boasted of "a big vote of confidence in the UK, and a vote of confidence in the coalition government's economic policies".

The Chancellor has been hoisted with his own petard.

The economic consequences of a downgrade need not be disastrous. France and the US have seen little rise in their borrowing costs since losing their AAA ratings. Indeed, France has just held its most successful bond auction for some time. But politically speaking, this could not be more uncomfortable for Osborne.

Yet if Moody's decision is awkward for the coalition, it offers scant comfort for Labour. Although the agency echoes Ed Balls's concerns about the lack of growth in the UK economy (it refers to "the materially weaker growth prospects over the next few years"), it does not accuse Osborne of going "too far, too fast". Indeed, it praises the government's "commitment to restoring a sustainable debt position". If anything, its complaint is that the Chancellor has been too timid.

As for the fiscal stimulus demanded by Labour, Moody's is clear that, in its view, this is not an option. Under the sub-head "What could move the rating down?", it cites "reduced political commitment to fiscal consolidation, including discretionary fiscal loosening". In other words, were Labour in power, the UK would almost certainly have already lost its AAA rating.

But then why we should listen to Moody's, the agency that gave AIG an AAA rating just a month before it collapsed? The answer is simple: we shouldn't. But this doesn't alter the fact that Osborne did. For political purposes, he used Britain's credit rating as a stick to beat Labour with. He can hardly complain if others now use this move against him. The hunter has become the hunted.

George Eaton is political editor of the New Statesman.

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Theresa May is paying the price for mismanaging Boris Johnson

The Foreign Secretary's bruised ego may end up destroying Theresa May. 

And to think that Theresa May scheduled her big speech for this Friday to make sure that Conservative party conference wouldn’t be dominated by the matter of Brexit. Now, thanks to Boris Johnson, it won’t just be her conference, but Labour’s, which is overshadowed by Brexit in general and Tory in-fighting in particular. (One imagines that the Labour leadership will find a way to cope somehow.)

May is paying the price for mismanaging Johnson during her period of political hegemony after she became leader. After he was betrayed by Michael Gove and lacking any particular faction in the parliamentary party, she brought him back from the brink of political death by making him Foreign Secretary, but also used her strength and his weakness to shrink his empire.

The Foreign Office had its responsibility for negotiating Brexit hived off to the newly-created Department for Exiting the European Union (Dexeu) and for navigating post-Brexit trade deals to the Department of International Trade. Johnson was given control of one of the great offices of state, but with no responsibility at all for the greatest foreign policy challenge since the Second World War.

Adding to his discomfort, the new Foreign Secretary was regularly the subject of jokes from the Prime Minister and cabinet colleagues. May likened him to a dog that had to be put down. Philip Hammond quipped about him during his joke-fuelled 2017 Budget. All of which gave Johnson’s allies the impression that Johnson-hunting was a licensed sport as far as Downing Street was concerned. He was then shut out of the election campaign and has continued to be a marginalised figure even as the disappointing election result forced May to involve the wider cabinet in policymaking.

His sense of exclusion from the discussions around May’s Florence speech only added to his sense of isolation. May forgot that if you aren’t going to kill, don’t wound: now, thanks to her lost majority, she can’t afford to put any of the Brexiteers out in the cold, and Johnson is once again where he wants to be: centre-stage. 

Stephen Bush is special correspondent at the New Statesman. His daily briefing, Morning Call, provides a quick and essential guide to domestic and global politics.