Economy: Rating Agencies

Lord Peston Excerpts

Wednesday 27th February 2013 Lords Chamber

[Lord Deighton]

As always, I thank my noble friend for his important observations. There are, again, several issues in there. First, he is absolutely right—Moody’s refers to this—that two things have caused this downgrade. The first is the sluggish growth of the global economy, which has slowed down the British economy; and the second is the very high levels of public and domestic debt, and the difficulty in driving those down.

On the second point, with respect to the credibility of the rating agencies, there are some very important issues surrounding that, particularly when one discusses complex securities such as the ones that we had in the mortgage-backed market. Frankly, with respect to the sovereign market, all the information used to determine credit assessments is perfectly visible to everyone, which is why the markets’ reaction to the downgrade on Friday was so measured.

[Lord Peston]

My Lords, bearing in mind that these agencies give the same grade to an enormous and widely different range of borrowers, leading economists pointed out a long time ago that they cannot be, and should not be, taken seriously. Also, is the Minister aware that all the best economic research shows that one major force exacerbating the economic troubles of the past few years has been the rating agencies? Would he remind the House who is supposed to be regulating these agencies and why they have not intervened? If they have not intervened, is it not about time that someone did something about them? These agencies are a real danger to the survival of the world economy, and I am amazed that the Chancellor himself takes them seriously.

[Lord Deighton]

The noble Lord makes some very important observations. First, as I am sure he knows, one of the rating agencies is being sued by the US Government, reflecting the very concerns that he brings out. With respect to relatively simple credit considerations, and in terms of the UK economy the information is all out there, the Chancellor’s economic policy and the performance of the UK economy is evaluated every second of every day by the financial markets. The verdict of those markets is reflected in our historically low gilt yields. This morning we were trading in the 10-year gilt below 2%, which is the most profound commentary on the success of the UK Government’s current economic policy.