The Union’s Credibility Gap

Danny Alexander George Osborne
Moody’s decision yesterday to strip the UK of its AAA credit rating (‘UK loses top AAA credit rating for first time since 1978’) represents a severe blow to the UK coalition government’s economic credibility. When the UK was first placed on negative outlook back in 2009 during the dying days of the New Labour era, George Osborne said he would restore the faith of the international financial markets in the British economy with an aggressive deficit reduction programme. Now, after nearly three years of Tory shock therapy – and with a decade of stagnation and unemployment ahead of us – the Chancellor’s austerity strategy lies in tatters. The case for a capital expenditure stimulus couldn’t be stronger. Labour, and shadow chancellor Ed Balls in particular, have every right to gloat. But before they do, they should bear in mind how heavily the unionist campaign has stressed the importance of British economic ‘strength’ when making the case against independence.

Here are a few choice quotes:

Scottish Labour leader Johann Lamont, 7 February 2012, in the Daily Mail on reports that an independent Scotland would not secure an AAA rating:

The economic case for separation is unravelling by the day….While independence may be an article of blind faith for the SNP, people deserve to know the real consequences of breaking away from the rest of the United Kingdom.

Even more embarrassingly, Scottish Conservative finance spokesman Gavin Brown, in the same article:

Ratings agencies are taken extremely seriously by investors all over the world, and this warning is therefore deeply concerning. A drop of just one notch would have severe consequences for our economy and it is vital that we maintain triple-A status. If we are to present ourselves as a country worth investing in we must be seen as a solid economic prospect, and the rating the UK currently holds guarantees this.

You can read the Chuckle Brothers here.

Andrew Hough, one of a slew of Torygraph writer’s who have obsessed on this issue wrote this time last year:

Standard & Poor’s, Moody’s and Fitch suggested an independent Scotland would not automatically inherit Britain’s top-notch credit rating, potentially leading to higher borrowing costs. One agency reportedly privately stated that Scotland’s “investment grade” rating would be some notches below AAA status.

And here’s Chief Secretary to the Treasury Danny Alexander in June of last year:

Credit rating agencies have said countries with new institutions take time to establish credibility. We’ve said before if interest rates went up one per cent, it would cost families across the UK an extra £10 billion in mortgage costs. It is likely the same one per cent would cost families in Scotland up to an extra £1billion.

 Read Danny’s words of wisdom here.

Almost two-thirds of the countries that now hold triple-A status have populations of less than ten million – including Finland, Sweden, Denmark, and Norway.

Now, what was all that about ‘making it up as you go along’?

Comments (11)

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  1. James Morton says:

    Westminster does not face problems that is has not faced before. The problem is that their problem solving mechanisms are fundamentally broken. This slow slide into learned incompetence most likely started in the 60’s. It metastised during the thatcher years, and amzingly continued under blair and brown.

    We also have a dangerous development were these politicians are incapable of admitting to making mistakes. It’s pretty obvious that the con-dems are going to keep on regardless of what has happened.
    The problem is going to worsen, but they are going to keep asserting that people living in council flats with a spare room are more of a danger to the economy than their economic policies. They will imply that students are just being snobs for not wanting to stack shelves, than admit the programme is taking jobs out of the job market and thereby deepen the recession further. Ed Balls gloated, but had Labour still been in power, 5 wiil get you 20 that we’d be in exactly the same dilemma. Anyone here to wants to argue that, should look first at Labours lax regulation of the banking sector, its deepening of the national debt to bail the bakers out, the selling of half tha nations gold reserves when the price of gold was at its lowest. They have no reason, to look smug, no reason at all.

    Will self said that the three main westminster parties were so close on many issues, that you could hardly fit a playing card between them. That and the expenses scandal was in my opinion the main reason we had a hung parliament. People either could not believe what they were being told, could not bring themselves to vote, for one party or the other. There was a break down of trust in the whole system.

    The idea then, that we are better together is just so much nonsense. the argument for the status quo, is really an argument to sustain this disfunctional and delusional system. As the tory cuts make their impact felt, a new type of negativity will emerge. Not the negativity of the Better together campaign, who through some sort of cognitive bais assert that it is in fact Scotland who suffer from learned incompetence, but the genuine fear and terror that what is happening down there, is going to come here.

    By adopting the language of the tories, New Laboour in Scotland, are in fact undermining the very Union they claim they are trying to protect.
    Don’t believe me – just take a good long hard look at what the tories are doing to the UK, and then tell me labour would do anything different.

  2. Keef says:

    http://www.moneyweek.com/endofbritain read this if you dare. I’d say it’s on a par with the McCrone report in terms of information that is not being brought to the public’s attention. Very scary and depressing reading indeed. It makes getting shot of Westminster all the more urgent.

  3. Clydebuilt says:

    Aye the Moneyweek report is devastating reading….
    Circulate the link to your contacts, ask them to circulate it to their contacts.

    Bring It to the public’s attention.

  4. Ben Power says:

    Be careful about that Moneyweek Report., Like an idiot sat through a more than 20 minute on line presentation that was the shock tactic of doom and gloom and the solution presented at the end of it was to subscribe to Moneyweek. I should have realised it was a hardsell scare promo to sell magazine subscriptions.

  5. keef22 says:

    Ben,
    They are, after all a commercial magazine. Nonetheless the facts and figures they highlight attest to the current omnishambles that the UK economy is experiencing. What’s more, their predictions are proving to be very accurate.

  6. thejourneyman says:

    Yes their predictions do seem credible but they are a commercial magazine and this is the longest sales pitch in the world. Here are some vital clues that might shed some light. 1. The so called experts offering the advice, still fundamentally believe in, and rely on, what they know of the current economic systems. 2. The piece is aimed at people with assets available to invest, not the wider general populace. 3. The reason given for things getting out of control is the “spiraling welfare system” which has demanded the resulting levels of borrowing.
    We do need to find solutions to the very real debt problems we have at every level, but the radical change we require is to stop government and bank control of society’s monetary system and give it back to the people. The reason the debt cannot be resolved is because most of the debt itself has been created as interest on money that never existed. Far from still being owed great debts, many of these lenders of ill repute have already been paid handsomely and we should therefore have no concerns about a debt amnesty for most of these ill gotten gains. Then we might, just might create a new monetary system backed by the labor of the people and providing a more equitable standard of living for all. Such changes have been written about before and it only needs the willingness of the people to rise up and demand a fairer system at the expense of the greed and corruption so prevalent in the current system. You won’t hear of this solution through a subscription to Moneyweek but it just may be possible if we were to take back control of our own affairs in Scotland!

  7. MacNaughton says:

    Well said journyeman…

    The expert advice contained in the Moneyweek subscription package is probably along the lines of a) buy a gun b) install a safe in your house c) buy US dollars d) invest in the Asian stockmarket…and nothing about the real world of most human beings.

    John Lancaster’s piece at the LRB is much more nunaced:

    http://www.lrb.co.uk/v35/n01/john-lanchester/lets-call-it-failure

    As for the UK AAA rating, it means very little to most people I would think, and I can’t see how it can be a vote winner for the YES campaign. Anything that feeds into people’s fears and uncertainties helps the NO campaign ultimately, that’s my view.

    And here’s something about the madness of the EU austerity drive:

    http://www.voxeu.org/article/panic-driven-austerity-eurozone-and-its-implications

    1. thejourneyman says:

      Thanks for the link to John Lanchester’s piece – despite the length of it!
      His comments are certainly more nuanced and within it there are many indicators of where the problems arise. Politicians and today’s economists definitely cannot give us a solution because no matter how many times they say the economy will grow before it actually shrinks, still doesn’t convince them that something in there thinking isn’t quite right. Most will be aware of the old adage that to keep doing what you’ve always done and expect to get different results might be the first sign of madness but still the merry-go-round continues!
      So far the Gov have pulled off the “blame it on welfare” tactic and many working people are buying it, I wonder who they’ll blame if this reduced credit rating starts to affect their mortgage repayments? We could end up, in the not too distant future, with the low paid and benefit claimants on the streets with the bedroom tax and the in work masses on the streets as more homes are foreclosed – I hesitate to imagine what might happen in society!
      We need radical change our current system is not fit for purpose. Monetary power must be backed by the work of the people which will create the flow of money to happen at the right level.
      The mystery of the recent employment figures is no real mystery.
      Major employers like supermarket chains, utility companies and our rotten to the core banks are still making obscene amounts of profit or bonuses but still they get away free of any proper scrutiny of their employment practices. Taking on good employees and releasing them before they have to make any commitment to proper conditions of work to be replaced with another similar employee. There is so much fluidity in short term contracts and part time work whereby people are in and out of jobs in weeks and sometimes days, that one thing we can be sure about is that there is no real grasp of just how many are working at any given time.
      As for the Mayans, they actually predicted the end of period of our existence and the start of a new period! Rather than dismiss their higher level of awareness many, like myself, see this as signifying the end of greed and corruption through a new period of enlightenment, inclusion and fairness requiring a far higher degree of thinking than that so prevalent today. It is for this reason I firmly believe our financial system will collapse, it is now self evident, what follows will depend on how much we are prepared to let go of our material desires and to invest in each other for more peace, fairness and social justice. Perpetual growth is not a natural law, we live on a planet of finite resources and how we live must reflect this if humanity is to survive.
      It really is that serious.

  8. What do the wealthy do with their wealth?

    Meanwhile here’s an interesting perspective on those ruling the UK, it’s tucked away in the Guardian:

    “The Oxford Student newspaper reported that a member of the Bullingdon Club was fined for setting off a firework at a nightclub earlier this month. According to the paper, the student was accepted into the club after an initiation ceremony which included burning a £50 note in front of a tramp.”

    http://m.guardian.co.uk/education/2013/feb/23/oxford-union-boycott-israel

  9. Craig P says:

    I am not sure Danny Alexander’s figures are in any way correct. He states that Scotland would incur 1/10 of any total increase in mortgage payments. Yet not only is Scotland 1/11, rather than 1/10 of UK population, I read recently that the richest 10 boroughs in London alone (there are 33 of them in total) have real estate worth more than all the real estate in Scotland, Wales and Northern Ireland put together.

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