There has been another flurry of speculation in Westminster over the risks to the UK’s AAA rating. Britain is only being spared from a downgrade because the sovereign credit rating agencies expect the Tories to be elected, at least according to Fraser Nelson and others. It’s an interesting argument — so interesting that I thought it was worth asking the credit ratings agencies directly. Here is my Q&A with Brian Coulton, Head of EMEA Sovereign Ratings at Fitch.

Q: Is the expectation of a Conservative victory at the general election a significant factor in calculating the UK’s sovereign credit rating?

We are obviously aware that there will be an election next year but our capacity to forecast the election outcome would not be a sufficient basis to maintain a ‘AAA’ rating. We believe that fiscal policy objectives will be reorientated over the course of 2010 regardless of which government is in power.

Q: Is there a big enough difference between the Labour and Conservative spending plans for the election result to materially impact the Fitch stable rating outlook for the UK?

The judgement about the likelihood of a successful fiscal consolidation from 2011 which stabilises and reduces UK public debt ratios over the medium term will depend on a range of factors including the realism of economic forecasts, the actual details of spending and tax plans, as well as the overall parameters of the planned adjustment.

Q: Have either Labour or the Conservatives given Fitch analysts more information about their post-election spending plans than is available to the public?

No.

Q: The Fitch stable rating is based on the government articulating “a stronger fiscal consolidation program next year”. Do you expect that to happen regardless of who wins the election?

Yes. As we get into 2010 the downside risk of deflation will be significantly diminished and fiscal policy goals are expected to shift from stabilisation towards consolidation. It is a feature of large AAA sovereigns like the UK - which have exceptional near term funding flexibility - that they can “sequence” fiscal policy goals in this manner and act in the near term to prevent an unnecessarily deep recession. But the re-orientation does need to happen during 2010.

Q: Is the likelihood of a hung parliament a factor in your calculations? Is it the election outcome that would most threaten the UK’s sovereign credit rating?

We detect a growing cross party consensus that fiscal adjustment needs to happen. A hung parliament could complicate the process of agreeing how this should be done but we do not believe it would lead to an impasse, unduly delaying the adjustment plans.

The Infrastructure Planning Commission is much more important than it sounds.

Depending on your point of view, it is either a] an undemocratic body which will impose unwelcome nuclear power stations and wind farms on unhappy villagers or b] the only way to prevent the lights going out in 10 years’ time.

One day it could be a case study in utilitarianism. Who should have the final say - the small minority or the big majority?

It’s a major issue because the IPC is about to start work. But the Tories would scrap it next year. Their argument is that such schemes can get built; companies just need to work harder to turn “nimbies” into supporters.

The counter-argument is that time is running out. Ironically, it was Greg Clark in the chamber this afternoon who kept repeating the phrase: “Why did they leave it so late?“. (A report this summer suggested power outages by 2017 the way things are going).

Well yes, it is Labour’s fault that we are in this situation. The dirtiest coal power stations will have to be closed in the run-up to 2015. Many nuclear power stations have less than a decade before they are wound down. And still UK renewables lag behind all EU countries bar Malta and Luxembourg (as this blog has mentioned before).

But if the British public won’t embrace more power - while demanding 24/7 energy supplies - surely the time has come for some form of compulsion? Even if that means angering environmental groups* and others? On this Labour seems to have a more practical policy than the Tories.

Ed Miliband, energy secretary, tried to make the case, gingerly, this afternoon: “Saying no everywhere will not be in the national interest,” he said.

The Tory approach is to let the secretary of state make individual rulings on schemes - subject to today’s national policy statements, released by the secretary of state. Therein could lie the potential for even more judicial reviews.

There is no doubt that business groups are worried about the Tory policy, as my colleagues wrote here.

The Institute of Directors said today:

“The establishment of the Infrastructure Planning Commission and the consultations on today’s national policy statements are important steps towards reducing these costly delays while preserving the democratic accountability that is properly part of the planning process. Now that the new regime is getting under way, it is important that nothing should be done to hinder the IPC’s ability to deliver quicker decisions on key infrastructure projects.”

*I know that Friends of the Earth and others want a more democratic system. But if the IPC delivers much-needed wind farms isn’t that the better of two evils?

So many numbers are flying around that you might not have spotted today’s real news on RBS.

That is, the government has wiped the slate of an estimated £9-£11bn of tax liabilities owed by the giant bank.

In private Treasury officials suggest that the figure is closer to £4.5bn. But the larger figure has come from RBS’s own accounts.

So, not only is the government pumping £25bn of new capital into RBS (as first announced in February). It’s also buying £6bn of new shares in Lloyds Banking Group as part of LBG’s private fund-raising. And it’s creating a contingency rescue fund of £8bn for RBS (which may never be used). Plus the £10bn tax write-off.

That’s close to £50bn of taxpayers’ money.

The Treasury’s defence is a] a lot of the money was announced in the spring, b] RBS will take on more onerous terms such as taking a bigger “first hit” of any losses and c] would your rather let the bank collapse and prompt another financial meltdown?

Even so: These are big numbers. John McFall, chair of the Treasury select committee, told the Commons: “RBS is in a worse state than everyone thought last February.”

You may have thought that the dust had settled on the public spending row after the Tories last week obtained a Treasury document showing plans for departmental cuts of 9.3 per cent over four years. This seemed to prove that Labour promises of further investment were a smokescreen at best.

Could Gordon Brown deny that this was the case? It was hard to rouse anyone from Downing Street to rubbish the 9.3 per cent figure last week. After all, it is there in black and white in a government document.

But the prime minister has today tried to wriggle out of his tight spot.

He told Simon Mayo:

“No, I don’t accept these figures, this was a leaked Treasury document that I have never seen and there will be lots of…(interrupted). Hold on, there would be lots of documents that would be around the Treasury looking at different potential options, but we have said we can maintain frontline services….”

He then goes on to suggest that there could be some “extra growth” which will be registered in the Pre-Budget Report. Interesting if this is the case. If not, this appears to be new evidence of Mr Brown’s stubbornness.

Okay, it’s not the same Fred Goodwin. This one works as an analyst at Nomura, apparently.

But the Tories have seized upon Goodwin’s report which suggests “the prospect of a UK fiscal crisis is a clear and present danger”. The report suggests that a fiscal crisis is “far more likely” in the UK than in the US - because the dollar is a reserve currency.

“The UK fiscal dynamics are unsustainable. The fiscal balance is plunging deeply into the red in a spectacular and frightening way. Who will fund it? Without QE (quantative easing) the possibility of failed auctions is not trivial.”

Apparently the government’s mega-programme of gilt issuance (selling bonds) has not yet been fully tested - because it has been exceeded by QE (buying bonds).*

When the government turns net seller we will see whether there truly is a market appetite for UK gilts.

George Osborne described the Nomura report as a “wake-up call” with Britain’s “international reputation” at stake. Privately, however, the Tories must be as worried as the government is - given that the situation may still be with us in eight months.

UPDATE

The exact figures are as follows:

* As of September 10 there has been £145bn of QE (assets purchased by the creation of central bank reserves), of which £143bn has been gilts. The process began on March 11.

* Since that date the Debt Management Office has sold £95bn of gilts.

He finally said it. There will be cuts. But Gordon Brown waited until he was nearly half an hour into his speech to admit it. (Bottom of page 7 out of 8).

And he wedged the stuff about deficit, hard choices, sustainable finances, cutting costs into a handful of paragraphs. The rest of the speech was the usual glorious talk about saving the global economy, the national economy and the range of initiatives which Labour has thrown out in the last year. And - to be fair - there were two genuinely big policy pledges.

More paternity leave and the swift implementation* of the temporary workers directive will please unions and, you’d have thought, workers. The business lobby might not be so happy but neither concept is exactly a surprise (the only question on the directive was its exact timing).

*UPDATE

My eagle-eyed colleague Jean Eaglesham points out that the government is only putting the temporary workers directive on the statute book in the next Parliamentary year. This is not the same as the implementation date. We still don’t know when that is going to be. In other words, this may not be much of a gift to the unions (and temps) as it sounded at first.

The union leaders don’t want to admit it. Brendan Barber argued this morning that Labour should keep on borrowing and spending until unemployment is on the way down - which could be several years away. But the simplistic debate between cuts and investment is now over.

We’ve now heard Alistair Darling and (today) Peter Mandelson both spell out the new message; that the UK is heading for difficult choices in public spending.

Earlier this summer Gordon Brown was maintaining the illusion that Labour would be able to preserve spending increases in the coming years. Here is what I wrote at the time, as a reminder. (Brown said “They (Tories) would cut savagely by 10 per cent and that is not going to be allowed to happen.”)

Now Downing Street is briefing that Brown has always been fiscally conservative over two decades; an attempt to erase the “investment” message of June.

Nick Robinson argues on his blog today that Labour is trying to rewrite history. Francis Elliott wonders just how great the difference is between the two parties.

Not a lot, you might think. In effect, Labour has been reduced to painting the Tories as maniacal small-state ideologues who - in the words of Mandelson - are “salivating about wielding the axe”. Will the public agree?

I suspect this quote by Brendan Barber may appear in tomorrow’s headlines:

“Last time we suffered slash and burn economics we had riots in the streets here in Liverpool. I make no prediction that this would happen again, but it would take us back to the days of a deep North-South divide and once again hollow out whole areas of the economy.”

In an earlier blog today I described how rising unemployment could stop the (GDP) recovery feeling like a recovery.

Throwing out statistics about how the technical recession may have ended could provide little solace to those who have lost their jobs.