The loss of Britain’s triple-A credit rating has been something of a political disaster for George Osborne, even if the downgrade by Moody’s at the weekend didn’t lead to turmoil in the markets.
The fact is that the chancellor made protecting our cherished AAA status a key benchmark of success in the Conservative economic policies he set out before the general election in February 2010.
Britain’s credit rating was one of “eight clear and transparent benchmarks” listed, and Mr Osborne said at the time: “Judge us by these benchmarks. Hold us to account.”
Let’s do just that.
The analysis
Most of Mr Osborne’s eight benchmarks really contain more than one economic target. Let’s look at each strand one by one.
Moody’s downgraded Britain’s credit rating from AAA to AA1 last week. CPI inflation is running at 2.7 per cent. The Bank of England expects it to hit a high of 3.2 per cent later this year and remain above 2 per cent until 2016.
Latest Office for National Statistics figures show the total value of exports of goods and services falling from £493bn in 2011 to £487bn in 2012. That’s a fall as expressed as a share of GDP too.
Strip services out, and exports of goods alone went up by a whisker (about 0.2 per cent). Because the economy only grew by the same tiny amount from 2011 to 2012 you could claim that exports of goods as a share of GDP have not fallen, but they haven’t gone up either.
And the trade deficit grew from 2011 to 2012 for both measures: we’re increasingly importing more than we export.
[*See update below]
Business investment – that’s capital spending by UK companies – has risen significantly since the election. And yes, the average household is now saving 7.7 per cent of its resources, up from about 6 per cent at the time of the 2010 election.
There were 974,000 unemployed people aged 16 to 24 in the last period we know about, October to December last year. In the first three full months after the 2010 election the figure was 921,000. The youth unemployment rate (percentage of the population) has gone up too, so it’s a clear failure.
On the other hand, the number of children in workless households has shrunk, from 1,868,000 in April to June 2010 to 1,754,000 two years later. That’s 114,000 fewer children in households where no adult has a job.
Corporation tax cuts mean Britain has improved its rankings in various surveys of global competitiveness, including those compiled by the World Economic Forum and KPMG.
On business regulation specifically, the most commonly cited index of business regulation is the World Bank’s Ease of Doing Business index. Britain has slipped from fourth place in 2011 to seventh in 2013.
A tricky one, this. We can’t find up-to-date official figures showing the balance between the private and public sector in the UK’s regional economies. If anyone can help – get in touch.
Again, ONS data on productivity in the public sector for 2011 and 2012 isn’t available yet.
The Banking Reform Bill is still going through parliament so it’s probably too early to call it as a success or a failure.
However, one thing we can say is that Mr Osborne is on course to break the promise on ensuring lower “levels of leverage” – that is, capping the amount of money a bank can hold in loans compared to its asset base.
Excessive levels of leverage have been widely blamed for the global financial crisis.
At the time of its collapse, Lehman Brothers was borrowing £31 for every £1 it held in the vaults, a leverage ratio of 31 to 1.
The Vickers Commission on banking reform recommended a safer ratio of 25 to 1 for the big banks, but Mr Osborne has opted to maintain the status quo of 33 to 1.
The government has accepted other Vickers recommendations, including the key idea of forcing the biggest banks to separate their high street operations from riskier investment banking.
Whether this ultimately improves banks’ risk profiles or helps more credit get to small businesses remains to be seen. The latest figures from the British Banking Association suggest that lending to small and medium enterprises is flatlining.
You could claim that greenhouse gas emissions have gone up or down slightly under the coalition, depending on whether you use figures adjusted to smooth the effects of unseasonably hot or cold weather, which create peaks and troughs in fuel consumption.
If you don’t adjust for external temperature, emissions have gone down a bit, from the equivalent of 576.5m tonnes of carbon dioxide in the second quarter of 2010 to 559.4m tonnes in 2012.
But if you do adjust for the weather, emissions have gone up by a tiny amount compared to 2010. We’ll chalk this one up as a “maybe”.
As for changes to Britain’s share of the global market in low carbon technology since May 2010, we’re drawing a blank here so far too. We will update with any figures we do get.
The verdict
Mr Osborne made these promises before the election, and of course the Conservatives didn’t win an outright majority, so we can’t quite call these policy failures.
On the other hand, we’ve had a Conservative chancellor since the election and these are the benchmarks by which Mr Osborne told us to judge him.
We think these eight benchmarks actually break down into 16 different targets.
We don’t know enough to make a call on six of them. Of the rest, we think Mr Osborne has succeeded in hitting four of his benchmarks and failed to hit six of them.
By Patrick Worrall
[*Update: One of George Osborne’s aides tells us we’ve got this wrong, because exports were higher in the last quarter of 2012 than before the general election (by coincidence, someone who doesn’t want to tell us their full name has made almost exactly the same point in the comments section below).
To be clear: it is absolutely right to say that exports were higher in the latest quarter we know about than they were at the time of the election.
But the pledge was to “create the conditions for higher exports”. And there has been a decline in exports over the last two full years. Exports did go up, but now they are going down.
If you agree that this is in fact a success story for the chancellor, we have to change the score: it’s five fails not six. As ever, the figures are available (here – table A1) so readers can make up their own minds.]
