THE anti-independence campaign was dealt a severe setback this weekend as the UK government’s strategy for
financial recovery was thrown into disarray.
• UK Credit rating downgraded from AAA to AA1
• Swinney attacks failure to invest in capital spending projects
Yes Scotland claimed that the No campaign had been dealt a “hammer blow” with the withdrawal of the UK’s much-vaunted AAA credit rating because of the economy’s continuing sluggish prospects for growth.
Alistair Darling’s Better Together campaign had put Britain’s AAA status at the heart of its efforts to prevent the break-up of Britain, arguing that the UK’s top rating saved Scots billions of pounds on the cost of their mortgages.
In the past, No campaigners have warned that an independent Scotland would not inherit a AAA rating, an outcome that would force up interest rates in Scottish banks, leading to bigger repayments for hundreds of thousands of families and small businesses.
Keeping the coveted rating has also been at the heart of the coalition government’s plans for recovery through austerity. Economists have warned that loss of the AAA status could see an increase in interest rates charged on government borrowing.
Last night the SNP’s Treasury spokesman Stewart Hosie said: “No campaigners used the UK’s AAA credit rating as one of their core arguments against independence. Now that has been shown up as misleading scaremongering.
“The loss of the UK’s triple-A status represents a failure of UK economic policy and the Tory-led coalition’s utterly misguided austerity agenda with the cruellest cuts falling on families and the most vulnerable members of society.
‘No’ campaign has also been dealt a hammer blow to its credibility.
“Westminster’s drive for austerity undermined any possibility for growth and demonstrates why the levers of economic policy should be in Scotland’s hands rather than a Tory-led government Scotland didn’t vote for.”
Finance secretary John Swinney said: “The UK government has got it wrong on all counts and it now needs the Chancellor to take action very swiftly in the budget to stimulate the economy and provide the platform for growth which they have failed to do since 2010.”
The SNP was reacting to the decision by the Moody’s credit rating agency to downgrade the UK for the first time since 1978.
The ratings agency cut the UK from AAA to Aa1, putting Britain in a similar position to France and the USA – two countries that also lost their triple A status while struggling with a massive debt burden and a lack of growth.
A country’s credit rating is the agency’s assessment of its ability to repay debt.
Announcing the downgrade, Moody’s said the expectation was that UK growth would “remain sluggish over the next few years”.
Moody’s verdict was an acknowledgement that it predicts that it will take longer for the UK government to reduce its budget deficit – the amount it needs to borrow in order to finance spending that exceeds tax revenue.
Jamie White, head of restructuring at international law firm Pinsent Masons, said: “In many ways it was anomalous that the UK kept its triple A rating for so long given downgrades to the likes of France and the USA.
“Though it is unsurprising, we should not kid ourselves that this will not impact the real economy.
“The cost of borrowing will likely go up for business as well as the government, so the thousands of zombie companies haunting the UK economy will come under further pressure.
“We can expect to see an
increase in insolvencies and restructurings.”
Labour’s shadow Chancellor Ed Balls described the downgrade as a “humiliating blow” to David Cameron
and his Chancellor George
Balls pointed out that Osborne had maintained that “keeping our AAA rating was the test of their economic and political credibility”.
Balls said: “What matters is the underlying economic reality. There has been no growth now for two years, our deficit is getting bigger… the plan has not worked. In the budget, the government must urgently take action to kick-start our flatlining economy and realise that we need growth to get the deficit down.”
Osborne, however, remained committed to his austerity programme. He warned that Britain’s situation would get much worse if the government abandoned its “commitment to deal with that debt problem”.
He said: “What is the message from the ratings agency? Britain’s got a debt problem. I agree with that. I’ve been telling the country for years that we’ve got a debt problem, we’ve got to deal with it. We’ve got to take tough measures to do that and I think people understand that.”
Osborne added the UK was still able to borrow money “very cheaply with very low
interest rates” from investors all around the world.
This was “precisely because people have confidence that we have got a plan”, he said. “We’ve got to stick to that plan and we are going to deliver that plan.”
A Better Together campaign spokesman said: “If the SNP are so concerned about the downgrade why aren’t they going to the credit rating agencies and asking what the credit rating for an independent Scotland would be?”