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UK Credit Rating

Volume 505: debated on Tuesday 2 February 2010

The Chancellor will be aware that the Governor of the Bank of England urged him to publish a credible deficit reduction plan or risk losing Britain’s triple A rating. The CBI has said:

“Current plans to halve the deficit over four years are too little, too late. The UK’s AAA credit rating must be put beyond doubt.”

Is it not high time that the Chancellor produced a credible deficit reduction plan so that it could be reduced substantially over the lifetime of a single Parliament?

That is not quite what the Governor said, but I say to the hon. Gentleman that we are committed to halving the deficit over a four-year period, which means a sharp reduction in spending. We propose to do that once we believe that recovery is established, from 2011. The Governor made the point that to withdraw support prematurely would risk damaging the economy. I agree with the hon. Gentleman that it is important to have a firm, credible plan. What is quite clear, though, especially in the past few hours, is that the Opposition do not have a credible plan, or even a plan at all. It is quite obvious that they are living from one day to the next. Their proposals are a complete and utter shambles.

Is it not about time that we looked at the way in which that system works, with faceless individuals who seem to have the power of countries in their hands? Is it not about time we demanded transparency, so that those individuals have to answer for some of the decisions they make after scurrying around, briefing against countries? We want some transparency in the system.

Inevitably in markets, people say things for different reasons, but what is important is that people are left in no doubt that we have a firm proposal to reduce the deficit over a four-year period. When one looks at the pre-Budget report, one will see that the structural deficit, which begins to be reduced next year, comes down by something like two thirds over that period. That is an example of where we are prepared to act.

What undermines credibility is someone saying one week that they need to tear up our plans and that not doing so is moral cowardice, and then the hon. Member for Runnymede and Weybridge (Mr. Hammond), the shadow Chief Secretary, when asked about the proposals, saying, as he did yesterday, “I can’t give you a specific figure now.” When pushed, he said, “Well, it might be £1 billion,” and then he says, “Of course, we don’t have a detailed plan worked out.” That is blindingly obvious. To coin a phrase, he can’t go on like this.

Could the Chancellor reassure the House that he and the Treasury fully understand the consequences of any downgrade of the UK’s triple A credit rating? Apart from the impact on demand for new issues of gilts and the costs of funds, he will be aware that many holders of UK gilts are restricted to holding triple A assets, and therefore that a downgrade risks provoking wholesale disposals by them. Does he have an estimate of the proportion of UK gilts that are held by institutions that hold only triple A rated assets? If he does not, will he ask the Debt Management Office to prepare one and have it available on Ministers’ desks on 7 May?

The only rating that is being downgraded at the moment is the shadow Chancellor’s. I put it to the shadow Chief Secretary that a week ago, the Leader of the Opposition said:

“We cannot go on like this…And you just need to look at Greece to see what happens if we do”

but yesterday, the shadow Chief Secretary, when asked on the television—

Order. I am very grateful to the right hon. Gentleman, but he has volunteered his views on these matters at considerable length already. I think we will leave it there.