The loss of Britain's AAA credit rating was a humiliating moment for George Osborne but as this afternoon's Commons clash with Ed Balls demonstrated, the Chancellor's position is stronger than it first appears. After asking Osborne an urgent question on the downgrade, Balls declared:
He has gone in a weekend from saying he must stick to his plan to avoid a downgrade, to saying the downgrade is now the reason he must stick to his plan.
It was a neat line but Osborne had little trouble resolving this apparent contradiction. In its explanation
of the downgrade, Moody's warned against "reduced political commitment to fiscal consolidation". Citing these words, Osborne said that while there would be no "reduced commitment from this government", Labour's answer to "too much borrowing" is "to add to it". The difference, of course, is that while Labour would borrow for growth (in the form
of tax cuts and higher infrastructure spending), the coalition is borrowing to meet the cost of failure (in the form of lower growth and higher long-term unemployment).
The problem for Labour, however, is that Ed Balls and Ed Miliband, aware that voters may not easily accept their distinction between "good" borrowing and "bad" borrowing, are unwilling to make this argument explicitly. Osborne ridiculed their approach as "an economic policy that dares not speak its name". The Chancellor's cause is aided by the fact that more voters continue to blame the last Labour government for the cuts than the coalition. Fearful of giving the impression that they would, in Osborne's words, make "the same mistakes" again, Labour will not openly declare that it too would borrow more (although, as Osborne noted, Ed Balls briefly did
on the Today
programme on Saturday) .
Rather than becoming trapped in a technical debate about the deficit, Labour would be wiser to focus on living standards, but if it wants to continue to attack Osborne on this territory it will need a much better explanation of its own approach. Without explicitly declaring that it would borrow for growth (and explaining why), the party merely reinforces the impression that borrowing is always and everywhere an economic ill. And that only strengthens Osborne's hand.