Response to Moody’s statement on the UK

Ed Balls MP, Labour’s shadow chancellor, said in response to the statement from Moody’s:

“This is a significant warning to a Chancellor who himself made balancing the books by 2015 and the views of the credit rating agencies the key benchmarks for the success of his economic policy. We found out last autumn that the Chancellor will not meet his deficit goal and is set to borrow £158 billion more than planned because of slower growth and higher unemployment. And now we have this statement from Moody’s, putting Britain on negative outlook.

“We have consistently argued that the Chancellor’s gamble – raising taxes and cutting spending too far and too fast – would backfire because without a balanced plan that promotes jobs and economic growth the government will not succeed in getting the deficit down. Moody’s is clear in its statement that the primary reason for Britain’s negative outlook is ‘weaker growth prospects’ which are making it harder to get the deficit down.

“With our economy now in reverse, unemployment at a 17 year high and £158 billion extra borrowing to pay for economic failure, the case for a change of course and a real plan for jobs and growth is growing by the day.”

BBC Today programme interview transcript

John Humphrys: It has holed your policy below the waterline hasn’t it because what you are saying is we have to loosen up a bit to encourage more growth, but Moody’s is saying no way?

Ed Balls: Well my policy has been consistently not to say you should set your economic policy by what the credit ratings agencies say. That has been George Osborne’s mistake. The one thing though they are is a weathervane for the way the wind is blowing and the fact is the wind is blowing now in a difficult direction for Britain because, as the report says, we don’t have growth in our economy. And let’s just remember, when we came off negative outlook in October of 2010, George Osborne said that was a vote of confidence. Now we are going back on to negative outlook, he still wants to say that is a vote of confidence. This is not a vote of confidence in what is happening in Britain because, as I have said consistently and in the face of the views at times of ratings agencies, is that without growth, without jobs, you can’t get the deficit down. That’s where we are.

JH: Are you saying that really we should not take any notice of what the ratings agencies are saying?

EB: Well look I think they are a weathervane for the direction of thinking, but don’t forget that they gave a triple A to Lehman Brothers in the period before they went bankrupt. So you have always got to have a pinch of salt. The fact is a year and a half ago the ratings agencies were saying to Britain, to other countries, you have got to cut faster, that’ll be good for growth and deficits. That has turned out to be untrue …

JH: Not quite, is it? Because they are still saying you have got to keep cutting, you’ve got to keep this austerity programme going?

EB: Well I am afraid we can’t expect a 100% u-turn from the ratings agencies straight away. The fact is though, I think it was Standard & Poor’s who said two weeks ago that austerity alone wouldn’t work and on its own it was self-defeating. That is what has happened here in Britain. George Osborne said the rating agency view was so important that he would sacrifice on that altar growth and jobs, but the problem was …

JH: I don’t recall him actually saying that? A slightly free interpretation of what he said …

EB: At the time of the autumn statement, John, when we had £158bn more borrowing than predicted a year ago, evidence our economy was flatlining and not going to grow and unemployment rising, George Osborne said well look despite all of that we  must press on because it is the only way to keep our ratings. The trouble is that even the ratings agencies are now saying austerity alone is self-defeating. The problem is, I fear what is happening here is that there world is making the 1930s mistake and the ratings agencies are partly responsible for this. Even though it is clear – in Greece, in Ireland, in other countries, in Britain too – this austerity isn’t working; the message is plough on, dig a deeper hole, carry on with an austerity which is failing. In the ‘30s that gave us deflation and mass unemployment. It is time people said this isn’t working. Of course we have got to get the deficit down, that means tough decisions, but unless you have got growth, if your plan is unbalanced it becomes self-defeating and today is the first evidence that even the ratings agencies are waking up to the fact George Osborne’s plan is not working.

JH: But that is a little more apocalyptic than we are hearing from others? Yesterday the CBI told us that things are looking a little brighter?

EB: Well look, the CBI said yesterday that they now think we may miss out on a double-dip recession; a year and half [ago] they and others were saying we’ll have strong growth in 2011 and 2012. The fact is our economy has flatlined, unemployment is rising, the deficit is much higher than it should be, George Osborne is borrowing £158bn more. The fact is, I think there is a pattern here, John – on the National Health Service, now on the economy – when the policy is not working the weak thing to do is to say we’ll carry on regardless, the strong thing to do is to say OK it is not working, let’s change to a better plan. We need that from George Osborne very badly.

JH: Then you’d call it a u-turn?

EB: I wouldn’t, I’d actually say to George Osborne: sanity is prevailing, do the right thing by growth, jobs, business and families in the country. I would applaud him if he did the right thing now, I would not play that game.

JH: Stephanie, that analysis that Ed Balls has just given us, you recognise that do you?

Stephanie Flanders: Well it is funny to see them each taking bits of this news and not other bits. For Ed Balls he is saying that the ratings agency judgement is a weathervane and it is as important as that, but it I actually wrong in its analysis about the Budget. And then you have the Chancellor saying it is not very important but actually it is completely right in its analysis of the Budget. I guess the question for Ed Balls always – this is a day he will probably enjoy because it is a day when the Chancellor is not going to be feeling particularly comfortable having set up the triple A as such an important part of his strategy – but there is always the question of if you think that this is a ‘30s–style situation then is a cut to VAT and some of the other things he is suggesting really going to be a match for the occasion?

EB: Well look I think a change of course is needed. I think it is clear that austerity around the world alone doesn’t work. We need a balanced plan, but a balanced plan says yes set out credible plans for the deficit, but get the economy moving, get some growth, get unemployment coming down. We have set out a five-point plan – immediate tax cuts for business, for consumers; some bringing forward of investment without which you won’t get the growth and jobs we need to get the deficit down. George Osborne has proved that and I think that over time this argument will be won. It is such a disaster for our country and the world to make the mistake of the 1930s. The rating agencies are starting to get there, I’m afraid our Chancellor of the Exchequer is still in complete denial about the state of the economy and the failure of his policies. And in the end somebody will have to clear up George Osborne’s economic mess.


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Posted February 14th, 2012 by Ed's team