We must free ourselves from the tyranny of the credit rating agencies

The disastrous record of the rating agencies proves that they do not deserve their exalted position.

"We have not overthrown the divine right of kings to fall down for the divine right of experts."

Harold Macmillan

When Macmillan warned about a tyranny of "experts", he probably didn’t have the credit rating agencies in mind.  But in 2012, it probably applies to them more than any other category of experts. These anonymous bodies hold enormous power over democratically elected governments. Their musings are often enough to force a government turn away from the democratic mandate on which they were elected. Only yesterday, Moody’s caused panic by stripping France of its AAA status.

Have these anonymous, powerful experts deserved the credibility and the exalted position they are given by the media and politicians? Have they shown real foresight that merits their ability to lecture elected politicians? In almost all cases, the answer is no. 

In December 2009, Moody’s decided to address growing concerns about the indebtedness of the Greek government.  Its declaration was clear, decisive and wrong, with its report being titled, "investor fears over Greek government liquidity misplaced." Moody’s suggested that, "the risk that the Greek government cannot roll over its existing debt or finance its deficit over the next few years is not materially different from that faced by several other euro area member states." It then went on to declare that, "there is an extremely low probability that the government's liquidity will pressured."

Only six months later, the first EU/IMF bailout package – of €110bn was agreed. And this slip up from the credit agencies came just over a year after their failure to predict the financial crisis that pushed most of the western world into recession. Lehman Brothers and AIG were still AAA or AA rated just before they collapsed.  At the congressional hearings into the pre-recession failure of the credit ratings agencies, they were accused of offering "opinion", rather than analysis.

Nor was this a one off. Sukhdev Johal has analysed what happened to corporate debt rated AAA by Standard & Poor.  Within three years, some 32 per cent of this debt has been downgraded and a massive 57 per cent had been downgraded within seven years. That doesn’t really suggest that the lionised credit rating agencies have much credibility in either the short or the long term.

There are important discussions to be had about the way in which European economies should be heading and crucial debates about a variety of policy directions. But we should stop kidding ourselves about the credit ratings agencies and stop thinking that their declarations should be decisive.

You can follow David on Twitter @djskelton

A sign for Moody's rating agency is displayed at the company's headquarters in New York. Photograph: Getty Images.

David Skelton is the director of Renewal, a new campaign group aiming to broaden the appeal of the Conservative Party to working class and ethnic minority voters. @djskelton

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How Theresa May laid a trap for herself on the immigration target

When Home Secretary, she insisted on keeping foreign students in the figures – causing a headache for herself today.

When Home Secretary, Theresa May insisted that foreign students should continue to be counted in the overall immigration figures. Some cabinet colleagues, including then Business Secretary Vince Cable and Chancellor George Osborne wanted to reverse this. It was economically illiterate. Current ministers, like the Foreign Secretary Boris Johnson, Chancellor Philip Hammond and Home Secretary Amber Rudd, also want foreign students exempted from the total.

David Cameron’s government aimed to cut immigration figures – including overseas students in that aim meant trying to limit one of the UK’s crucial financial resources. They are worth £25bn to the UK economy, and their fees make up 14 per cent of total university income. And the impact is not just financial – welcoming foreign students is diplomatically and culturally key to Britain’s reputation and its relationship with the rest of the world too. Even more important now Brexit is on its way.

But they stayed in the figures – a situation that, along with counterproductive visa restrictions also introduced by May’s old department, put a lot of foreign students off studying here. For example, there has been a 44 per cent decrease in the number of Indian students coming to Britain to study in the last five years.

Now May’s stubbornness on the migration figures appears to have caught up with her. The Times has revealed that the Prime Minister is ready to “soften her longstanding opposition to taking foreign students out of immigration totals”. It reports that she will offer to change the way the numbers are calculated.

Why the u-turn? No 10 says the concession is to ensure the Higher and Research Bill, key university legislation, can pass due to a Lords amendment urging the government not to count students as “long-term migrants” for “public policy purposes”.

But it will also be a factor in May’s manifesto pledge (and continuation of Cameron’s promise) to cut immigration to the “tens of thousands”. Until today, ministers had been unclear about whether this would be in the manifesto.

Now her u-turn on student figures is being seized upon by opposition parties as “massaging” the migration figures to meet her target. An accusation for which May only has herself, and her steadfast politicising of immigration, to blame.

Anoosh Chakelian is senior writer at the New Statesman.

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