Last week we saw the ratings agency Fitch downgrade the UK's credit outlook from 'stable' to 'negative'. Cue much wailing and gnashing of teeth in the corridors of power throughout Westminster, with the coalition government saying this justifies their position as the 'guardians of austerity', whilst the Labour party mumbled about how these parsimonious plans clearly weren't working. Meanwhile, the markets remained completely indifferent and carried on regardless because - and here's a little bit of a secret - this statement by Fitch doesn't really matter all that much.
In the past year we have seen France, Japan and the US all lose their AAA ratings from one or more of the ratings agencies. France was dragged down as a result of the issues in the Eurozone, while the failure of the US Congress to come to an agreement on the debt ceiling proved their ratings' downfall. Japan has had earthquakes and tsunamis and remains hugely in debt from decades of economic stagnation, but the downgrading of their debt, just like that of the US and France, has had little effect on the fundamentals of their economies.
As convenient as it is, the comparison between the credit rating of a sovereign nation and that of a household is incorrect. While both are based around quantifying how much of a risk a loan to either party may be, the dynamics of that debt differs entirely.
If my credit level slips as a result of missing a mortgage or credit card payment, for example, then I can naturally expect to have any further borrowing charged at a higher interest rate to make up for that stain on my copybook. Naturally, if the comparison was true, we should expect to see the borrowing costs of US, Japanese and French debt increase following their cuts. In fact, all three have seen their cost of borrowing fall.
Likewise, following the Fitch announcement, sterling did not bat an eye-lid, and finished last week higher versus its main competitors (euro and dollar) on the money markets. The loudest reaction was from the political class, who, as I mentioned, took the opportunity for some cheap political peacocking.
That said, the reasons for the downgrade from Fitch were valid. There is a lack of room for manoeuvre when it comes to tax cuts and negligible growth. Indeed, only the most cynical of commentators would say that it is happy coincidence that the Fitch announcement came the week before the Budget.
George Osborne wanted to make it clear at the weekend that this is a "budget for growth" - which you would hope all budgets are - and while the details would never have been leaked in the past (one Chancellor, Hugh Dalton, lost his job for leaking details of his 1947 budget) what we can see of this one makes for interesting reading.
The one point that will likely grab the most headlines will be the cutting of the 50p tax rate to 45p. The arguments set out for cutting the tax (doesn't bring that much money in and is seen as a negative by overseas businesses) don't quite ring true to me. I found myself actually agreeing with Ed Balls on this matter, in as far as saying that this isn't a concern of businesses or the CBI.
The economy would benefit a lot more from the credit-easing strategy of giving cheap loans to small and medium sized businesses laid out in the pre-budget statement of last autumn. That, combined with a cut in corporation tax to maybe 21%, would represent a major fillip for those doing business in the UK. Add in a hold on fuel taxes and this could be the pro-growth stunner that people are looking for. Just don't tell the ratings agencies.