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February 25, 2013 8:48 pm
The market reaction following the stripping of the UK’s triple A rating may have been muted on Monday but the political fallout was highly charged as George Osborne was hauled into the chamber by Labour to be goaded over the “humiliating” downgrade.
The chancellor, greeted to chants of “resign” from the opposition benches, was teased by Ed Balls for failing the “first economic test he set himself” after Moody’s cut Britain’s credit rating on Friday night.
“The downgrading of Britain’s credit rating is, in this chancellor’s own words, humiliating for this government,” the shadow chancellor told MPs. “The chancellor needs to get out of denial and get a new plan that will actually work on growth, jobs and deficit. Or else the prime minister will have to get a new chancellor.”
Mr Osborne, flanked by Philip Hammond, Michael Gove and a core of Osbornite backbenchers, said the downgrade had not brought “excessive volatility” to the markets.
But it has further damaged his own increasingly shaky standing within the party. The chancellor’s decision before the 2010 election to make Britain’s triple A status a measure of his success is now seen as more evidence of poor judgment.
“It was rank inexperience – foolhardiness verging on stupidity,” said one of his colleagues. “He would be OK if growth was ticking along at 2.5 per cent, but it’s not,” said another senior Tory, as he questioned whether Mr Osborne had the skills to cope with the persistently weak economy eroding his political capital.
It is the latest is a series of self-inflicted mistakes from the Tory’s chief strategist. Backbenchers say Mr Osborne’s reputation was heavily dented last March after a disastrous Budget which saw the chancellor forced into embarrassing u-turns over plans to tax Cornish pasties and static caravans.
More traditional Tory backbenchers have also privately blamed the “metrosexual” Mr Osborne for pushing through the deeply divisive same-sex marriage vote. Meanwhile, his use of political patronage to give jobs to his inner circle in last autumn’s reshuffle also spawned a fresh burst of anti-Osborne sentiment.
As long as Plan A fails to generate growth, Mr Osborne will remain vulnerable to attacks from Labour – and from his own side.
But in spite of efforts by Tory MPs to promote the case for William Hague to move from the Foreign Office to the Treasury, Mr Cameron has consistently said he will stick with his chancellor through to the next election.
“He’s not under threat, he is fully supported by the prime minister which is the only support he needs,” says one senior backbencher. “That said, MPs may say disobliging things about him as the economy stagnates and if we fail to win Eastleigh or anything else goes wrong with the economy there will be more agitation in the party more generally.”
The loss of the credit rating may not matter much to the financial markets but it is symbolic of the chancellor’s failure to deliver his economic plan and lends weight to those agitating for more action in next month’s Budget.
The Tory right wants Mr Osborne to cut taxes sharply – John Redwood has called for a temporary cut on capital gains tax to encourage property transactions – and additional spending reductions to give a jolt to the economy.
“[Losing triple A status] doesn’t mean anything in policy terms but politically it is very embarrassing for those who made a big deal out of it,” said a senior Lib Dem. “Now, politically, Osborne has to be seen to be responding.”
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