GEORGE Osborne was facing renewed demands from the Tory rank-and-file for tax and spending cuts after Britain was stripped of its prized AAA credit rating.
Ministers and senior party figures rallied round the Chancellor in the wake of the decision by agency Moody’s, predicting it will have little impact on the Government’s borrowing costs.
But Conservative backbenchers warned that next month’s Budget was the “last chance saloon”, demanding cuts to corporation tax and capital gains to revive the economy.
Meanwhile, Labour reiterated its calls for borrowing to be increased in the short term to fund a fiscal stimulus.
Explaining its move on Friday, Moody’s pointed to “subdued” growth prospects in the UK and a “high and rising debt burden”.
It now expects the “period of sluggish growth” to “extend into the second half of the decade”.
Business Secretary Vince Cable dismissed the downgrade as “largely symbolic”. He said: “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.”
Tory former Chancellor Ken Clarke warned it would take years to regain the top credit rating.
But he said the coalition should “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.”
However, Conservative backbencher Adam Afriyie – touted by some as a future party leader – said public spending cuts so far had not been very deep.
He proposed raising the tax threshold, abolishing national employers’ national insurance contributions, and lowering corporation tax and capital gains.
“The coalition is about to enter the last chance saloon,” he wrote. “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.”
Labour deputy leader Harriet Harman said: “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.
“How many more signs does he need before he realises that their economic plan has failed and has made things worse?”