In his first Mansion House speech last June, the Chancellor made much of the fact that the economic fall-out from the banking crisis increased the risk that investors will lose faith in a state's ability to fund itself.
Osborne has used this as a platform to justify his austerity plans, arguing that though the UK has a higher deficit – the annual shortfall in the budget between revenue and expenditure – than crisis-hit Greece, it pays similar interest rates on its national debt as Germany, a bastion of fiscal rectitude.
Economists are split over whether the UK was in real danger. The financial crisis certainly blew an £84bn-a-year hole in the UK's public finances as tax revenues suffered, according to the Institute for Fiscal Studies (IFS). But unlike our debt-laden European neighbours using the euro, who have seen their borrowing costs soar, the UK sets its own monetary policy to suit the country's individual needs. Also, much of the UK Government debt consists of long-term bonds, which avoids the need to constantly return to the markets to raise more funds.
"There was never a real risk of a sovereign debt crisis in the UK. At the time of the May 2010 election the similarity with the Greek economy was significantly overblown," says Simon Kirby at the National Institute of Economic and Social Research (NIESR).
Kevin Daly and Adrian Paul at Goldman Sachs are convinced that a debt crisis was a risk, although the UK's borrowing costs show investors never lost confidence in Britain's ability to fund its borrowing. "Bond yields can suggest everything is fine, until it is not," they say.
It is unknowable what would have happened if the Coalition had reacted differently. But the yield on the UK's 10-year bond is now slightly lower than it was a year ago, at around 3.3pc against 3.6pc. That reveals that investors in sovereign debt feel more confident about the UK than they did a year ago.
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