Vince Cable Dismisses AAA Credit Downgrading To AA1 As 'Background Noise'

Vince Cable dismissed the loss of Britain's prized AAA credit rating as "background noise" today.

The Business Secretary admitted that Chancellor George Osborne had been eager to maintain the top level, but said the reduction to AA1 was "largely symbolic".

Cable also said the Lib Dems could vote with Labour on a Commons motion on a mansion tax - if the opposition refrains from "playing politics."

Explaining its ratings decision on Friday, agency Moody's pointed to "subdued" growth prospects and a "high and rising debt burden" weighing on the economy.

It now expects the "period of sluggish growth" to "extend into the second half of the decade".

Labour branded the move a "humiliating blow" for Osborne and called for higher spending to boost the economy, while there were renewed demands from the political right for tougher curbs on budgets and tax cuts.

However, the Chancellor has vowed to press ahead with his economic strategy, insisting there was no sensible alternative.

Speaking on the BBC's Andrew Marr Show this morning, Cable rejected the idea of slashing spending further.

But he hinted that investing more in infrastructure, skills and science could help boost the economy.

Asked about the impact of the rating reduction, Cable said: "It is largely symbolic.

"In terms of the real economy there is no reason why the downgrade should have any impact.

"If you remember last year the US was downgraded, the economy grew strongly relative to Europe... and France had a downgrade last year, its interest rates that it borrows long term in the markets are only a little above ours.

"These things do not necessarily affect the real economy but they reflect the fact that we are going through a very difficult time and we are trying to balance the need to get the deficit and the budget under control with the need to get back to economic growth."

Cable went on: "The rating agencies have a pretty bad record. They are a bit like tipsters. They get some things right and a lot of things not right.

"They are part of the background noise we have to take into account."

Cable said: "I think to embark on a slash and burn policy in response to this would be utterly foolish and counterproductive, and I am sure we will not be going there.

"What I am concentrating on in my job in government is factors that create real substantial long term growth.

"In other words skills training, supporting manufacturing, supporting exports, investing in science. These are the things that really matter."

Cable was asked about a call from Mark Littlewood - director general of the free market Institute of Economic Affairs and a former Lib Dem press chief - for deeper public spending cuts.

"Well, he's a right-wing ideologue," he replied.

On the question of whether the Government could afford to spend more, the Cabinet minister said: "I thought it depends what the spending is for. We have to reduce government current spending, that is what we are trying to do...

"But there is a lot of government spending that is investment in the future, investment in skills and science and infrastructure, and we have got to continue doing that."

Cable said the argument about whether the coalition should shift from 'Plan A' to 'Plan B' was "a bit juvenile".

"What we are actually talking about is Plan A+, or Plan A++. Of course you have got to have the budget discipline but you have also got to have the government acting in a way that supports growth," he added.

Labour has come out in favour of a mansion tax, one of the Lib Dem's key policies.

Asked whether the party would vote with Labour on the issue, Cable said it would depend how the motion was worded.

He added: "We don't rule it out, I think it's probably unlikely that the Labour Party would resist the temptation to play politics with this."

Labour deputy leader Harriet Harman told the BBC: "The reason why the deficit hasn't been going down is because the economy hasn't been growing and the way you get growth is a One Nation approach where you invest in people, in industry, in infrastructure to help the economy grow.

"The trouble is that if George Osborne doesn't understand what is going on and won't change course, then people face more years of 'Will our kids ever be able to get a job, will they ever be able to move out of home, are we going to see our living standards falling back?'

"I think really, how many more signs does he need before he realises that their economic plan has failed and has made things worse and they need to change course?"

Former Labour chancellor Alistair Darling said he had been "extremely doubtful" of the Government's strategy ever since 2010.

He told Sky News' Murnaghan programme: "I think that when they were elected they very unwisely staked their reputation on maintaining the AAA credit rating that they had, they compared us to Greece, they said they could eradicate the structural deficit by 2015.

"These were wildly optimistic claims and they were perhaps made because of inexperience and maybe a touch of recklessness.

"But the result is that they have sustained quite substantial political damage, but more importantly for the country the economic harm of yet another another blow to confidence. I think that is very, very important, they have been following the wrong economic strategy, but they are paying a very, very heavy price for it."

Darling said there was flatlining growth with more borrowing, adding: "There are many people who now say, look you have to change tack, you have to recognise that a plan to try and slash and burn your way out of this simply will not work."

He added the Government was pursuing policies "that simply don't work".

Asked if Osborne should consider his position, he replied: "I'm sure he'll reflect on whether it was wise to go on about the credit rating which he's been doing since 2009. It's not him it's the whole Government, the whole Government is pursing a misguided policy."

Former Conservative chancellor Kenneth Clarke defended Osborne's strategy and said the Government should "carry on with the sensible economic policies we've got".

He told Sky News' Murnaghan programme: "It is quite clear that the global economic and financial crisis is persisting, it's worse than we thought, several more years are required and I don't think for most people actually in the circumstances of 2013 this change to the credit rating comes as much of a surprise.

"The Americans have already lost their AAA rating and they like us are going to have to persist with sensible policies combining getting rid of debt and deficit, at the same time stimulating growth and having an industrial strategy.

"It's going to take several more years of this, in order to get back not just our credit rating which we will get back eventually but to get back to sensible economic growth."

He added: "The idea you press a button called growth and it works in this international climate is of course nonsense."

Asked if Osborne should consider his position, Clarke replied no-one could forecast a country's position in two or three years time and in the present circumstances "Britain was doing better than most other European countries".

He urged the Government to "stick to" its policy, adding: "I think the way in which we will recover confidence is making clear we're a strong firm Government, that the strategy we're on is the one that is eventually going to get things better and that the alternatives frankly are a bit odd."

Fellow former Conservative chancellor and Tory peer Lord Lawson said he did not think Osborne had lost "any authority at all" and was pursuing the right policies.

He told Sky News' Murnaghan programme that the economy was not teetering on any brink but bumping along the bottom.

He said: "We are gradually coming out of this recession but it's going to be a very slow, very long, very painful process I'm afraid.

I think that what is absolutely clear, is that he has to stick to the policy that he has been pursuing. There are maybe one or two other things he could do to improve it but not change the basic thrust of the policy."

Tory former chancellor Lord Lamont played down the impact of the reduction, and suggested Osborne had set too much store by the AAA rating.

"The message that this sends out is that the fiscal consolidation is in the opinion of some people taking longer than expected," he told BBC Radio 4's World This Weekend.

"But it is wrong to draw the lesson from that as being you ought to expand borrowing and moderate it even further.

"If anything they are saying, 'you are going too slowly'...

"We have always been on a plan B, in a sense, rather than a plan A but I don't think, as I say, one should draw the conclusion that we should go more slowly."

The peer said some people believed there would soon be no AAA ratings left, adding that "even Germany may be vulnerable".

Asked if Osborne had previously overstressed the importance of the credit rating, Lord Lamont said: "Maybe you shouldn't have placed so much emphasis on it then, but you shouldn't place so much emphasis on it now either."

He went on: "I would be surprised if it significantly increased the costs of borrowing by itself."

Tory backbencher Adam Afriyie - touted by some as a future party leader - said reductions in public spending had not been very deep, and called for tax cuts.

He also demanded that red tape from Brussels be slashed, and proposed efficiency measures such as introducing e-invoicing - which he claimed could save billions of pounds a year.

"The Coalition is about to enter the last chance saloon. On Friday the UK lost its AAA credit rating, with Moody's citing a lack of growth for its downgrade decision," he wrote in the Mail on Sunday.

"Without growth, the Government will not secure a Conservative majority in 2015. For all the cuts and austerity, core Government spending has been reduced by only 3% since May 2010 and the national debt will actually increase by 58% over the course of the Parliament.

"This Budget is a final opportunity to deliver real growth before 2015. Grandiose infrastructure projects have their place but they do not deliver immediate economic benefits. What we need are bold, simple, serious measures to secure growth right now."

He attacked the tax system as "horrendously complicated", insisting high rates "penalise wealth creation" and hamper job creation.

"The aim of the tax system is not merely to raise more cash for the Exchequer; nor was it created so that politicians could use it as a vehicle to demonstrate their political ethics," he said.

"Our current system acts as one long line of massive barriers to growth. These barriers can be removed only by simplifying the tax regime."