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Why Britain lost its AAA rating

22 February 2013

Even the pessimistic analysts had given Britain until September to lose its AAA rating. That it has happened now, before the Budget, shows just how fast things are moving. Moody’s has tonight downgraded Britan from AAA to AA1 and has also told us why.

Don’t expect economic hell to break loose as a result: these ratings tend to follow, rather than lead, the markets. But this is politically devastating for George Osborne, given that he has asked us to judge him by the preservation of this rating (and made it a manifesto pledge). So what went wrong?

1. The markets now doubt that Osborne has a credible debt strategy. The below graph, released earlier today from Citi, shows how things have gone pear-shaped. It shows debt as a share of GDP, which has risen as growth has evaporated. The green line shows how Osborne first promised to handle the debt. The dark blue line is how it’s now likely to go. The failure of this thick blue line of debt to level out, let alone descend, is why the credit rating agencies are so worried.

Moody’s is not as pessimistic as Citi, and expects UK debt to peak at 96pc of GDP in 2016*. But that’s still bad enough to trigger an early downgrade.

“Given the pace of deficit and debt reduction that Moody’s has observed since 2010, there is a risk that the UK government may not be able to reverse the debt trajectory before the next economic shock.”

2. Osborne’s St Augustine strategy: shifting the pain ever-further into the future Moody’s statement refers to:-

“…the government’s fiscal consolidation programme, which will now extend well into the next parliament…which necessarily makes their implementation less certain.”

This is a reference to what James Forsyth has called Osborne’s St Augustine approach to austerity: “Lord, let me balance the books – but not yet.” In the below graph, the pink shows the proportion of fiscal tightening to be enacted by whoever is Chancellor after 2015 (and the bookies believe it’s unlikely to be Osborne). Each bar represents a Budget or Autumn Statement and shows how Osborne’s resolve has weakened pretty much every time he has stood up in the Commons to make a statement. We’re now at the stage that just over 50pc – ie, the majority – of the pain is being deferred until after the election.

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Osborne knows that Labour unlikely to call him out out this. Ed Balls is fixed on a false narrative: cruel, harsh cuts. He’ll never admit that core spending (ie, stripping out debt and dole) is rising under Osborne: it destroys his line of attack. The media tends to reflect the debate between the parties. So if Labour isn’t making a fuss about core spending rising under Osborne, then no one will notice. Except those pesky rating agencies.

3. Britain is seeing the worst recovery in history. Moody’s says that, in the old days, we sprang back. This time: not so much. Making debt artificially cheap is not, it turns out, much of a growth strategy. It has this to say:-

“The country’s current economic recovery has already proven to be significantly slower — and believes that it will likely remain so — compared with the recovery observed after previous recessions, such as those of the 1970s, early 1980s and early 1990s.”

It may as well have thrown in the 1930s because this is the…

Osborne’s strategy has been mainly rhetorical, not economic. Focus groups like to hear that the deficit has been cut by 25pc – not knowing this also means debt is up by more than 25pc. The Prime Minister talks about “paying down Britain’s debts” and Osborne talks about “dealing with the debt” giving the clear impression that the debt is falling. This works – politically, at least. Polls show just 6pc of the public realise that debt is rising. But 100pc of the credit rating agencies know the real picture, which looks like this:-

Moody’s says it has not given up on Britain and its analysis is full of flattering references. AA1 is still a very respectable rating. Also remember that Britain – unlike Greece – has its own central bank which is able to print as much money as the government wants to spend. So if the markets don’t want to buy all Osborne’s IOU notes then the Bank of England will gobble them up (and we all pay the price via higher inflation/pension shortfalls).

America’s borrowing costs actually fell after its downgrade, so Moody’s thumbs down may not inflict actual financial harm. It’s fairly clear that, somewhere along the line, Osborne decided to take this hit, rather than try to find greater savings in government budgets. (His cuts total just under 1pc a year right now, hardly harsh or deep. But he does have an election to think about, and believes that deeper savings would hurt the Tory Party’s chances.)

One thing is for sure: Osborne will make fewer references to taking the British economy “out of the danger zone” because this is precisely where Moody’s thinks we now stand.

* Moody’s also notes that the UK debt would have been even higher had it not been for Osborne’s recent Masterchef manouvre where he bagged £37bn of QE cash


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Show comments
  • Sue Clay

    Oh well. Huge structural deficit. Huge national debt. A million more state employees than the country can afford. Uk industry run down. Oil reserves drained. Banking industry in a mess. Half of all adults leaving state school without gcse maths and english (a broken system)….. and dont forget the iraq invasion for the Thatcher falklands moment.

  • john

    I am a Brit who now lives in the US. Big royal events do not increase tourism – they just change the timing. Of course Americans etc can name (some of) the Royals – they are a permanent feature and are given endless positive publicity. For foreigners they (or more accurately British pagentry) are a free Las Vegas showtime. The true cost of the Royals cannot easily be estimated (on purpose) but certainly runs in the 100s of millions each year. There is no evidence thay have any impact on tourism numbers – do you go France and look for a Bourbon? Spain has a monarchy and relatively few tourists even go to Madrid never mind seek out the Spanish royals. As an American, would you be happy with a hereditary President? How will a non-white, non-CofE Brit ever get to be Head of State?

  • Hilton Holloway

    The single most important ‘stimulus’ to the economy is low mortgage rates. Even Brown knew this. I have an average mortgage on a 2.5 percent rate. If it rose 0.5 percent, the payment would increase by £120 month – terrifying. That would be repeated up and down the land – imagine the amount of cash taken out of the economy?

    • Chris Morriss

      From those figures it seems that you have massively over-extended yourself regarding the size of your mortgage. I have zero sympathy for those who are that imprudent and then whinge that it’s not their fault. No different from all the other benefit scroungers in my opinion.

  • Dogsnob

    Recovery towards what? Profligacy, dissolute usury and the glorification of greed. Can’t we do it differently?

  • john

    Debra: Seems you and I agree – great! John

  • jj

    Ah, rating agencies – the butterfly that beat its wings in the Amazon triggering the credit crunch, now being sued by the US government. But not yet discredited enough for an economically illiterate UK media.

  • john

    I am pessimistic about the economic and social outlook for the UK. But there are exciting developments on the horizon (1) 2013 – Kate is having a baby (2) 2014 -Harry has a girlfrend and maybe 2014 can see another Royal marriage (3) sometime in the next few years we can all look forward to the coronation of King Charles and Queen Camilla. So we can keep the plebs entertained while the economy tanks.

    • FMarion

      In America we very fortunately have the Kardashians, who allow us to ignore our own dismal economic and social outlook.

      I think we have another advantage over the UK, though. From what I can tell we are subsidizing the immigration of fewer people who want to kill us and dismantle our institutions than you guys are.

      Nothing quite says “social suicide” as subsidizing the importation of significant numbers of people who want to kill you and dismantle your institutions.

      • john

        The Kardashians are a pale and brief Windsor – lite clone. They will quickly pass into the black hole of yesterday’s fads. Unfortunately, the Windsors cost a ton more, impact UK life more and will take a lot more to get rid of.

        • Bill Quango MP

          I think the queen and immediate circle cost us all about 50p a year each.
          And we get some of that back in tourism and tea towel sales and such.

          You pay a pound to have a go on the lottery
          £1.80 for two hours car parking
          You pay £120 odd pounds to use a public road
          £145 to have a television
          £750 to have the bins emptied

          If you think that 50 p will help with that lot you could write to the queen and ask for a refund.

          Btw- cost of a second class stamp today is ….. 50p

          • john

            Nonesense. Real estimates indicate the royal family cost about 200 million quid a year. This does not reflect the value of all the UK resources used to underpin them – houses, soldiers, police etc etc. Nor does it reflect the Royal family’s underpayment of taxes for centuries. A President would cost about 5% of the royals.

            • Bill Quango MP

              So a president would live in their own hose and have their own private security? Travel by Easy jet and drive a Citroen C4 ?

              The costs would be very similar. Except no one would be coming to London to stand at the edge of the terraced house driveway to take a photo of the President’s Wheelie bin

              • john

                Again a nonsense comment. People do come to look at 10 Downing Street. They do look at the White House in DC or public buidlings in France, Germany etc. Buck House, Kensington Palace, Sandringham, Balmoral would still be there and fully open to visitors. Tousrism is a bigger indistry in France than in the UK and I don’t think they still have the Bourbons.

                • Bill Quango MP

                  But you claimed that the real costs of the royals are in housing and policing and travel and advisers, staff and such.

                  So if you want the savings from your £200 million burden you need to ensure that President Blair and his first lady live in one of their own houses at their own expense.

                  Otherwise..where do the savings come from?

                  Oh, and you have to add the upkeep of Sandringham and Windsor castle and Buckingham palace etc to the public purse. They will still need paying for unless you want them to fall down. I suppose you could find a billionaire who would take them on. The richest Saudi might be interested.

                  I think you’ll find that the 50p cost is the cost of the royals. The rest is a fixed cost unless you want the PM to be the head of state as well, as his/her costs already come with the job.

                  And Tourism is a bigger industry in France because they have a North sea/Atlantic / Mediterranean coastline and a direct border with Germany/Belgium/Switzerland/Italy and Spain ..and us of course.

                  They have beach resorts, countryside, cities, and .. well I’m sure you can figure out why they have Tourism.

                  But I’m sure you are right.

                  Americans and Japanese would definitely come to photograph the Mayor of London. Even if he was Ken Livingstone.

                • FMarion

                  John: I am an American so I don’t have a dog in this fight. I can tell you two things, though. First, we’ve managed to create an imperial presidency that costs a lot more than your monarchy. Try to avoid that if Britain goes republican.
                  Second, women (and not a few men) in many of the other countries on earth are fascinated by your monarchy. Perhaps one American in a hundred could name the prime minister, but mention the name “Kate” and instantly half of America knows who you are talking about. A huge percentage of tourism to England is driven by royalty-mad foreigners (Hollywood would tell you that Britain does the “visuals” of royalty extremely well). I have little doubt that you take in far more in royalty driven tourism dollars than you spend on the institution. That doesn’t say whether you should keep it, but don’t underestimate the economic benefits.

              • john

                Of course, cost is not the fundamental objection to a Royal family. It is that they infantilize everyone else. Britain has been working on democratic institutions for a 1000 years but we still have a House of Lords and a Monarchy. Neither is appropriate and 60 million Brits are capable of electing their own Head of State (for a fixed term only).

  • john

    Britain’s economy has been stagnant for decades. For 20 years, it was artificially boosted by a real estate boom and a financial sector bubble. Both are now over and there is nothing to repace them. Unfortunately the British response is to revert to the habits of 50 years ago and this can only make the situation worse. London has done fine till now but everywhere else in the country the prospects are dreadful.

  • efhrrgnhtfhthtr

    Osborne is incompetent thats why we lost the rating

    Sign this petition to restrict Bulgarian and Romanians from entering the UK:

  • Smithersjones2013

    But he does have an election to think about, and believes that deeper savings would hurt the Tory Party’s chances.)

    What chances? Cameron and Osborne are dead men walking especially if they think they will be able to convince the electorate that all the pain is worth it just so Government can keep borrowing and wasting money on their foreign adventures!

    All government has been doing since 2008 (and likely much earlier) is putting off the day when it has to face reality about its debt addiction and pandering to its various vested interests. It has in the most grossly negligent way wasted the wealth of this country and left it disastrously in debt.

    Whether we are talking of Major and Clarke, Blair, Brown & Darling (and their little helpers Balls & Miliband) or Cameron and Osborne, they are all guilty of gross arrogance and incompetence.

  • Roger Hudson

    The ultimate service economy : two people living alone on a desert island hoping to earn a living by taking in each others washing.
    We have too much dependence on services, too many outsourcing firms, too many financial manipulators, too many public servants and too much reliance on consumption, a consumerist culture dependent on credit.
    We need invention and creation ( and not computer games please) with links to high-tech manufacturing.
    You could argue that all our essentials of life can be provided by a smaller workforce, look at the crazy increase in the population since 1900, we may be completely screwed, like the Japanese.

    • Bill Quango MP

      Out of interest, why not computer games?

      A top game sells millions and millions of copies?
      Why wouldn’t you want us to have companies selling millions of units worldwide?

      Why Does it matter if its a game or a phone or a new bog roll holder?
      Success is success, surely?

  • Augustus

    “Britain… has its own central bank which is able to print as much money as the government wants to spend…”

    Yes, But that cannot last forever. At some point either the state will have to spend less or taxes will have to go up, otherwise the books will never balance. The UK’s real problem is that it is impossible to raise enough tax to support a state sector that now consumes 45% of GDP. The money simply isn’t there, and the more taxes are increased, the less cash is actually raised. And it’s no use trying to punish people for either being wealthy, or aspiring to be. It is the desire to get wealthier that drives a free-market economy – take that fuel out of the tank, and it won’t run. The debate should be about shrinking the state, not trying to support an ever-expanding one.

    • FMarion

      Augustus: Yes, and it will have to happen one day because like you say, the money simply isn’t there. The same is true for most of the industrial world, including the US. Unfortunately when you have a state sector consuming 45% of the GDP and an intellectual/educational class almost entirely focused on how to redistribute the remaining 55% rather than figuring out how to grow the pie, it is pretty safe to say that any talk of shrinking the state will be met by anger and vitriol that will be amplified by a largely comlicit and wilfully ignorant news media.

    • David B

      I fear one other alternative to sort the mountain of national debt – hyper inflation.

      This erodes the debt and pumps asset prices, creating illusion of growth and good times. QE started the process, and now Mr King looks like he is interested in QE3.

  • john

    Britain has given up. The country has no credible means of moving forward and instead has slipped back to a1950s mentality. No growth, no constitutional change, back out of the EU and return to endless Royal B/S and pageants. The future looks bleak.

    • HooksLaw

      Go see your doctor.

      • Dogsnob

        john IS the doctor

    • Debra Eddy

      Totally agree.

  • Des Brown

    There are two ways of looking at this. In truth, it’s of little significance that the UK’s rating is downgraded from AAA to AA1. The USA, Japan and France don’t have AAA ratings – only Canada and Germany amongst the major economies do.

    However, it is significant that the Chancellor staked his economic competence on the AAA rating. It’s much like the Labour Government coming to office in 1964 and staking their reputation on defending sterling. By November 1967, they were forced to devalue and Chancellor James Callaghan was soon gone. For Osborne, this is his ‘Pound in your pocket’ moment.

    • HooksLaw

      Since the AA1 status is of no significance – as you allude to – then to compare it to devaluation in 1967 is rubbish.
      Wilsons pound in pocket was a typical piece of two faced propagandising. There is no equivalent here. Except of course in the area of ambulance chasing journalists like Mr Nelson who are too brainless to think beyond the next headline.

      The govt needs to control its own spending which it is doing. The economy is not generating tax revenues, (which it never did under labour). This despite more employment and less unemployment. There are clearly structural issues which have nothing to do with minutiae of budget statements about AAA and such rubbish.
      What are they? Mr Nelson is silent because he has not got a clue.

      • Des Brown

        The point I was trying to make is that few economists don’t see much difference in Britain having a AA1 rating instead of AAA. But the real significance is politically as the Chancellor had put great emphasis on retaining the country’s AAA status and has been seen to fail. This parallels with the Labour government in 1967 which had put great emphasis on not devaluing sterling then having to devalue sterling. It had little effect on the general public but it had a damaging political effect on the Labour Government. I’m not expecting Cameron to make a TV broadcast saying it won’t affect the pound in your pocket. Osborne should never have placed so much emphasis on Britain retaining her AAA (it’s just really not that important – he made it sound important)

  • rgtgthyjyjy

    Britain lost its AAA rating because the government pay billions to the EU, let foreigners claim benefits and have not got immigration under control

    Sign this petition to restrict Bulgarian and Romanians from entering the UK:

    • HooksLaw

      How do you expect to attract custom when you lie so brazenly.
      Norway is not in the EU but it pays to EU funds and its borders are open to Bulgarians and Romanians.

  • The Red Bladder

    What with this little lot and the polls at Eastleigh next week might the words “the good news just keeps on coming” have been a touch on the premature side?

  • FMarion

    The real question here is not what Mr. Osborne should have fiddled with here or there, but why any sensible investor would buy any medium or long term soverign debt these days.

    The article points to one of the risks when it says: “Also remember that Britain – unlike Greece – has its own central bank which is able to print as much money as the government wants to spend. So if the markets don’t want to buy all Osborne’s IOU notes then the Bank of England will gobble them up (and we all pay the price via higher inflation/pension shortfalls).”

    Precisely right. And that higher inflation will push up interest rates, thereby driving down the value of the bonds the trusting investors just bought. In the late 1970’s and early 1980’s, government bonds were sarcastically called “certificates of confiscation” because that is what happened to investors’ money.

    The simple fact is that the UK, like almost every other modern industrial state, has a larger public sector than it can afford and it is running out of ways to pay for it. The UK is probably going to be propped up for a while by flight capital (and talent) from places like France (whose government seems to be bent on economic suicide), but it is pretty much near the point where it can no longer effectively raise money by raising taxes and at some point the cost of the money it borrows is going to go up drastically.
    It isn’t going to be pretty when the music stops.

    • Anthony Makara

      Labour’s great mistakes were relying on the financial sector for revenue and creating a huge non-productive public sector to mop up large scale unemployment in areas like the north-east. Can Labour learn that lesson and build on the current government’s desire to see new manufacturing balance out the economy? We need to see more from the opposition on this matter given that it knows it cannot go back to more non-job statism to absorb unemployment.

      • Tom Tom

        Thatcher had the same policy but funded it with North Sea Oil

        • Anthony Makara

          Government should invest in Public Works initiatives as permanent feature,built into the benefits system to tackle long-term unemployment but that work must be productive and be made to pay for itself. Urban regeneration for example, work that would be of benefit to all taxpayers. Such a system would not carry the controversy of taxpayers money being used to fund unemployed-labour in the private sector.

          It will take a generation to eradicate mass unemployment, even with the right policies, so until then the benefit system itself has to contain a safety net of waged work to ensure that the long-term unemployed do not become socially alienated.

  • dalai guevara

    coming up next: rate rise

    • Chris Morriss

      And the sooner the better. As Fraser says: “Making debt artificially cheap is not, it turns out, much of a growth strategy”. As a few thoughtful people have been pointing out here for the last 3 years, interest rates were reduced too much, and have been kept too low. Given that the country’s problem (and the problem of huge swathes of the population) is having excessive debts, then encouraging extra debt by ludicrously low interest rates is shooting ourselves, not just in the feet, but through our hands as well.

      • HooksLaw

        Good to see Nelson has friend in the nut house
        Canada 1%
        England 0,5%
        ECB 0.75%
        Fed 0.25%
        Swiss 0.0%

      • Dogsnob

        Not many people even contemplating borrowing right now: we’ve learnt a lesson.
        More importantly, there are millions of people at this time, on the brink of ruin – they can just about meet their monthly bills. What you are suggesting is that it’s good to put up their mortgage repayments so that they lose their house.

  • Makroon

    Uh-oh, another chance for Mr Nelson to whip out his famous (and well-thumbed) power-point slides.
    Osborne has certainly been sailing close to the wind over the past year, but the timing and content of Moody’s statement is rum to say the least.
    On the other hand, King’s campaign to talk down Sterling and muddy the waters on inflation and QE, certainly must have sent warning signals to the markets.
    A Chancellor at war with his central bank governor, (and apparently unwilling or unable to shut him up), does not exactly present a picture of responsibility and sobriety in our financial affairs.

    • HooksLaw

      Nelson is a one trick pony, a juvenile little johnny one-note. Pretending like the economy now is like the economy in 1930 and thereby worth comparison is purile.
      Labour relied in the financial sector in its 13 years. It then destroyed the financial sector.
      The very sector we rely on for revenue and growth and to lend for growth is corrupt and self serving. Is it any wonder business has been badly served down the years.

      Mr Nelson is more interested is circulation than his calculation. Osborne is a convenient aunt sally for Mr Nelsons pea sized brain.
      He does not want the gov to spend money I get the impression he wants to raise interest rates he seems to want the govt to cut taxes and add to the deficit yet complains about the deficit.
      He ignores rising employment falling unemployment and sales growth in litmus test products like cars. Into this he wants to throw the burning rag of lower taxes for the better off as if this magic wand will undo years of structural failure.
      Our performance counts as much as it relates top competitors and as such we are still mostly ahead.

      • Daniel Maris

        It’s difficult to know what Nelson wants. He obviously wants public expenditure to be cut but gives no clues as to what, where, when…And then he recommends Swedish tax cuts…except Sweden still has about the highest tax rates in the world.

        I certainly think increasing the tax take is part of the answer – just as we did during the war. We are in a financial emergency and we need to get out of it. If Nelson’s family have to cut out one visit to Sweden because of the increase in the tax take, I think he can survive that below. Meanwhile we can pay down the debt and protect the most vulnerable in society.

    • Daniel Maris

      Yep, but he never admits that the GDP growth chart shows that under Labour there was a classic recovery going on and it faltered immediately Osborne took over – it’s never got back on track since.

      • Bill Quango MP

        Keep telling yourself that. It’s nice to have a comfort blanket for opposition.

  • Roy

    When Derby has to close down its Locomotive Works after the country buys German rolling stock, is it not surprising Moody’s consider the country lacking in purposefulness for a recovery?

    • Tom Tom

      Would that be Bombardier perchance ? A company kept afloat by Canadian Government subsidy to a Quebec darling

  • Anthony Makara

    Using the deficit as an excuse to undue everything the previous government had set in place, at the expense of economic recovery, will be remembered by future historians as a deliberate form of ideological politics. We know that the State had grown too big and in the long run would eventually have to be reined in, however trying to go too far, too fast, on the back of a historic breakdown in credit, was only ever going to lead to recession and the loss of market confidence. All this combined with a deliberate attempt to engineer inflation, to help wipe the debt through devaluation, makes this government one of the most ideological that we have seen in our country. It has lost the support and confidence of so many of us.

    • Newsbot9

      Regardless what you think about the long term, it’s “cuts” vs “austerity”. The Austerity Gospel of St. Osbourne, because that’s how the government have pushed it, has caused widespread uncertainty and it itself helped to smash consumer spending.

      Raising VAT has also done a great deal of damage there.

      • John

        No, this is a stupid fallacy the notion a politician can “talk down” an economy is rubbish. The fact is Osbourne has not cut enough and the deficit is over 100bn/year, while he talks of austerity he does absolutely nothing austere. He’s just another lying politician with optimistic forecasts and that’s why we got downgraded

        • Newsbot9

          Keep ignoring the real negative effects of things like VAT rises, which are not “talking down” anything, they have a disproportionate negative effect on spending.

          And that’s right, anything less than machine gunning the poor won’t make you happy. Keep ignoring the fact that his Austerity is not working, and calling for doubling down on failure.

          You’re a good Tory.

    • kyalami

      The problem is not that the government has gone too fast – quite the opposite, which is why debt continues to grow. The government has been to timid and still wastes vast amounts of money.

      • Daniel Maris

        Not good enough…you have to tell us what you want to cut and where.

        • kyalami

          And yet, astonishingly, I don’t.

          All I “have” to do is point out that government overspending has brought chaos to the economy and needs to be brought under control.

          You, I suspect, would prefer the economy of Greece.

    • HooksLaw

      Given that the deficit has come down by just 25% and we are worried that it is not coming down quick enough rather shoots your fatuous argument down in flames.

      Labours policy is to inflate away the debt.

      • Chris Morriss

        That is true, but do you really not think that it is the coalition’s policy as well? After all, with inflation approaching 4% for the last three years it is de facto what they are doing.

        • Daniel Maris

          Any government with any sense would inflate as much as they could get away with.

    • David B

      We are in the no win situation. If we cut the public sector we get a recession because it is to big, but if we continue to grow the public sector then we also get recession as we rape and pillage the private sector to fund the debt.

      Better to cut and at least the chances of growth at the end are improved, after all Japan tried the second model and it fail.

      The real issue is if we don’t control the debt and public sector then eventually that control will be imposed on us and then the cuts will be big and brutal. Just look at Greece

      • John

        The fact is he has not cut enough and we have refused to take our medicine. The longer he refuses to take the medicine the bigger the crisis will be. Remember bailing out the banks does not fix the situation, all those bad debts are still there on the books and must be realized. Most of these debt figures DO NOT include the banks bad debts which are now ours so the situation is even worse. We have not been taking our medicine but we will be forced to at some point and the crisis will be even worse as a result. Thanks Osbourne!

        The whole country, currency and economy will collapse under a weight of bad debts

        • David B

          The bank bail out is the worst model that could have been chosen, it was costsly and it has not allowed the problem to be propertly addressed. The banks have not worked since the bail out, and willnot work until they are returned to the private sector.

          Yes you are right, the public sector is to large and will fall in on itself soon enough. The mess will be hudge and the NHS and Forign Aid will be the first to go.

          My point is that Osbourne is in a no win situation. He has tried the slowly slowly appraoch and the economy tanked under the weight of existing debt. If he had cut deep, it would have tanked (but the recovery would have been strong when it came). What he really needed was the Canadian model and a complete rethink of the goverment interventionl model was needed, but the Lib Dems would not have accepted that.

  • John Smith

    Damn that pesky Public Sector
    I bet George wished he had restructured it now ..
    Instead of fiddling at the edges

    Now he will have to . .

    • Daniel Maris

      If you think this debacle has something to do with the public sector you are gravely mistaken.

      The key error was for Osborne to launch a politically motivated attack on the public sector which required and resulted in millions of UK citizens being scared witless that they were going to lose their jobs. This is what caused consumer confidence to collapse – and that is what has choked off the recovery in the UK.

      You can see that in the graph. The recovery falters precisely at the point Useless Osborne takes over.

      • kyalami

        Entirely wrong.

        Osborne has cut far too little. Big public sector cuts would have given the private sector the opportunity to thrive.

        • Daniel Maris

          You have no evidence to support that conjecture.

          But you miss the point. Unless you are suggesting cuts of say 50% in one year (which would create complete chaos with councils and health authorities unable to honour their contractual commitments), you are simply saying Osborne needed to add a few per cent to the cuts. But it wasn’t about the amount of the cuts, it was about presentation and perception.

          Back in 2010, people were already v. nervous knowing how bad things were and having been through a period when their own savings had been under threat. It was psychologically the worst point at which to launch into rhetoric about big changes in employment. People naturally took flight. The emphasis should have been on keeping people in employment in the public sector through a recruitment freeze but with offering severance terms for those willing to give up employment. At the other end, the emphasis should be on creating work opportunities for young people.

          Instead Useless Osborne put the wind up everyone in the public sector and among people in the private sector whose jobs depend on teh public sector (a lot of people). He collapsed consumer confidence.

          • kyalami

            Actually the shock came from finding out the lies that Brown and Balls had been talking: that you could carry on with a spendthrift economy without consequences.

            BTW, where did people “take flight” to: France, Spain, Italy, Greece?

      • Roger Hudson

        His ‘attack’ was pure bluster, he never cut deep just skimmed the surface. See how many were sacked and then ‘advisers’ or ‘contractors’ were taken on.
        The real hard work will now have to start, seen Greece lately.

        • Daniel Maris

          Perception is important in politics. It was his choice to promote an austerity mood in order to achieve political objectives as part of his overall strategic vision. Osborne likes to think he is a great strategist when he is really what he was back in the days of the Bullingdon Club, a social secretary.

          Greece is on the mend. The UK isn’t.

          • Tom Tom

            Greece is NOT on the mend nor is Italy the world’s No3 Borrower after USA and Japan

      • Smithersjones2013

        Let’s examine our public sector shall we? We have some of the worst education stats in any of the G20 nations and our marvellous NHS has its fabulous achievement of killing hundreds if not thousands of people unnecessarily. Not to mention our marvellous Treasury that is so debt addicted the Chancellor, Deputy Prime Minister and Prime Minister delude themselves by telling everybody debt is being paid down when in fact it is rising and of course this is the same treasury that didn’t see the economic crisis coming.

        Then there is the marvellous HMRC who is more renouned for losing data, miscalculating benefits and letting big business avoid taxes than it is for collecting taxes competently. Not forgetting there is the Criminal Justice system that has doubled the number of prisoners in the last 20 years and seen crime rise significantly. Not to mention an Immigration department that is completely incapable of deporting illegal immigrants. And on and on we go…..

        On the local side all we ever hear is how the numbskulls in our councils are reducing services and still wanting more taxes..

        The public sector is dysfunctional, corrupt and incompetent and has been going rotten for a decade or more.. It is not fit for purpose!

        But still the bureaucrats get their gold plated pensions and walk away as if all was rosie in the garden…..

        • FMarion

          Smithersjones: You say that the public sector is not fit for its purpose. But doesn’t that assume that the public sector’s job is to provide services to the public at a reasonable cost? It seems to me that if one assumes that the primary purpose of the public sector is to provide votes for politicians that it is not only fit for purpose but it is ideally suited for it.

        • Daniel Maris

          Smithers, you’re talking about structural issues there about which we may agree or disagree ( I note that the UK still has a world class higher education sector – top three I think). There may be various ways to tackle those structural issues, but that will take several years. What we are talking about here is how a Chancellor handled a financial emergency that required an immediate response on the new Government taking over. He cocked up. I pointed it out at the time and so did others. He destroyed consumer confidence. A stupid thing to do in the circumstances – like shouting “Fire!!!” if you want an orderly evacuation of a theatre.

    • Newsbot9

      Oh he has. He’s bumped up the costs of public pensions to you by persuading people they’re a bad deal, and to stop paying in when they’re young. This is the ONLY way he could of done it.

      • Dogsnob

        I’m sorry but ‘could of’? Do you expect anyone to take you seriously when you don’t even have a grasp of your own language?

        • Newsbot9

          So sorry I speak English. Oh, and I’m dyslexic. But keep making it clear you can’t actually comment on my points.

          • Dogsnob

            You’re not dyslexic, just slovenly.

            • Newsbot9

              Ah yes, no surprise you’re a bigot there too.

              • Dogsnob

                Just can’t be doing with faux victims that’s all

                • Newsbot9

                  That’s right, you can’t be bothered looking at reality.

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