London, England—Moody’s Investor Services, the international credit ratings agency, stripped Britain of its elite AAA credit rating, after citing stumbling economic performances and ongoing struggles to reduce its deficit. This is precisely what ongoing government attacks on welfare were supposed to prevent.
Chancellor George Osborn is struggling with intense unpopularity following his government’s “austerity” measures. But Osborn merely doubled down on his failed policy, claiming that “tonight we have a stark reminder of the debt problems facing our country and the clearest possible warning to anyone who thinks we can run away from dealing with those problems.”
The ruling coalition government, made up of the Liberal Democrats and Conservative parties, has taken a hostile view to welfare provision. Institutions such as the National Health Service have come under attack. Imposing a strict plan of austerity with the most recent measures being laid out in a now notorious Welfare Reform Bill, the Coalition has repeatedly stressed such actions are necessary to restore economic stability.
Moody’s own credit research analysis stressed that the decision to downgrade has more to do with an “anticipated slow growth of the global economy” than with Britain’s internal market. Claiming that the UK’s economic recovery has proven slower than that of previous recessions in the 1970s, ’80s and ’90s, Moody’s noted the apparent inability of the government to meet its fiscal consolidation targets.
The agency also mentioned the possibility of a further downgrade should political commitment to debt recovery and consolidation prove lacking.
The loss of Britain’s elite economic status comes as a stark reminder of the government’s previous claims that their economic policy would be the way for Britain to retain its AAA rating. “Protecting the credit rating will not be easy,” claimed Osborne back in 2010, “but the economic risk of not setting ourselves this benchmark is not one that I am willing to take…we will protect Britain’s credit rating and international reputation.”
The Welfare Reform Bill passed last month. In addition to further caps on assistance for those in and out of work, there is a measure aimed at reducing the availability of housing benefit for those deemed to be “under-occupying” their homes. This so-called “bedroom tax” will force those living in a property with a spare bedroom to take a cut in their housing benefit. Those in under-occupied properties can face a reduction of up to 14% in housing benefit for single rooms and 25% for two unoccupied rooms.
Considering that housing benefit is usually paid to those already on low wages, the unemployed or the disabled, the additional “tax” could provoke an exodus from social housing into the private sector.
DESPISED BEDROOM TAX
“Surveys tell us that around one-third of tenants will try and move, mainly to one-bedroom properties,” said Hugh Owen, Director of Policy and Communications at Riverside Social Housing, “However, there is a national shortage of one-bedroom council and housing association homes, and many tenants will have no choice but to move into the more expensive private sector or stay put.”
According to experts, economic reality does not point to the necessity of measures such as the bedroom tax. Martin Wolf, in an article for the Financial Times, said the decision by Moody’s to reduce the UK’s credit rating was “neither surprising, nor informative nor, in itself, damaging. But it is humiliating for the coalition government.”
Wolf went on to state that the move represents the failure of the government’s own attempts to slash the deficit; an opinion that represents diminishing faith in Chancellor Osborn’s ability to manage the crisis.
“He, his colleagues and advisers were too confident about the strength of the economy and so about its ability to cope with fiscal tightening,” wrote Wolf. “He could tighten harder; but then he risks another recession. He can tighten more gently; but then he is open to the charge of abandoning his plans. He will presumably stick doggedly to his plans and hope for the best.”