UK is acting like a sub-primeborrower

15 March 2010

As I said last week chancellor Alistair Darling must put forward a credible plan to repay the national debt.

Darling and Prime Minister Gordon Brown are making the City jittery amid concerns that lack of action is putting the country’s credit rating in jeopardy.

If we lose our AAA rating we will effectively become a sub-prime borrower, only able to raise debt at more expensive rates and from fewer sources.

The effect of this would be swift and cause long-term damage - the Bank of England base rate would almost certainly rise, as would LIBOR and mortgage payments.

But the most damaging thing would be that the government would have lost control of short-term interest rates - the main reason why repossessions have stayed low.

To keep the confidence of ratings agencies Darling must lay out a clear plan as to how we can cut costs - and these cuts must happen immediately.

I agree with the Confederation of British Industry that Darling and Co look like they are taking a leisurely approach to this problem.

In fact, I’d go a step further. Far from considering spending cuts it seems to me that Labour has increased spending. Has anyone else noticed the explosion in the amount of roadworks started in the past six months?

This does not feel like a country tightening its belt - more like a sub-prime borrower trying to remortgage its way out of trouble.