UK to fix debt by emulating canada where 20% cut in government spending fixed it in 3 years

Britain to emulate Canada's radical solution to tackle debt
George Osborne is planning to eradicate Britain's budget deficit by emulating Canada, where borrowing was brought under control within just three years by spending cuts of 20 per cent.


By Andrew Porter, Political Editor
Published: 10:08PM BST 06 Jun 2010
George Osborne: Government to emulate Canada's radical solution to tackle debt
Senior Conservatives, led by Mr Osborne, have examined the Canadian model while in opposition and have taken advice from those involved Photo: REUTERS

The Chancellor will announce a "once-in-a-generation" revolution in public spending inspired by Canada in the mid-1990s, when the government turned a budget deficit of nine per cent of GDP into a surplus.

Canada brought public spending under control guided by the principle that people should ask "what needs to be done by government and what we can afford to do".

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Mr Osborne and his Liberal Democrat deputy, Danny Alexander, will attempt to bring about a similar change of mindset in Britain.

The ambitious plan will be welcomed by those who believe swift and decisive action is necessary to bring Britain's budget deficit and spiralling national debt under control quickly.

However, it is likely to prove controversial with those who believe it could tip Britain back into recession and public sector workers who face losing their jobs.

David Cameron will warn today that the scale of the problem is worse than he thought and the potential consequences even more critical.

The Prime Minister will say that the "momentous" decisions he will take will have "enormous implications" that will affect everyone.

The new approach to public spending will see:

* An unprecedented public consultation exercise on what people expect from public services and where they think the cuts should fall.
* A fundamental re-evaluation of the relationship between government and the public sector.
* A new "star chamber" of Cabinet ministers vetting every departmental budget.

At the height of the Canadian debt crisis in 1994, the country had a budget deficit of around 9 per cent of GDP.

The following year, Jean Chrétien, the Liberal prime minister, unveiled what became known as the "bloodbath budget", in which departmental spending was reduced by an average of 20 per cent.

By 1997 the deficit had been eradicated. However, health and education budgets were slashed and thousands in the public sector lost their jobs.

Mr Osborne and Mr Alexander will set out in detail tomorrow how they intend to emulate this approach to cut Britain's £156 billion budget deficit. They will announce the timetable for the public spending review this autumn, as well as a public consultation process.

Their plans will herald "a revolution in how public services are delivered", according to a Treasury source.

The source added: "For 13 years spending reviews have suffered from the assumption that central government always knows best. The result has been falling public sector productivity and waste on an industrial scale.

"Anyone who thinks the spending review is just about saving money is missing the point. This is a once-in-a-generation opportunity to transform the way that government works."

Senior Conservatives, led by Mr Osborne, have examined the Canadian model while in opposition and have taken advice from those involved.

The idea of a star chamber – copied from Canada – will transform the way spending rounds are carried out. A committee of around four senior ministers will “test” the claims of each department before their multi-billion pound budgets are agreed.

Today, Mr Cameron will deliver a speech on the economy in Milton Keynes, in which he will say: “The decisions we make will affect every single person in our country. And the effects of those decisions will stay with us for years.

“It is precisely because these decisions are so momentous … I want to make sure we go about the urgent task of cutting our deficit in a way that is open, responsible and fair.”

He will also warn that the problem of the deficit is worse than he feared, because Labour’s growth projections appear too optimistic. Independent estimates about the level of spending cuts that are needed in Britain suggest further parallels with Canada.

The Institute of Fiscal Studies said last month that cuts as high as 25 per cent for each Whitehall department would be needed by 2015.

While Mr Cameron has been blunt with his uncompromising message to the country, Nick Clegg, the Deputy Prime Minister, told a newspaper that the cuts would not be as savage as those of the Conservative governments of the 1980s.

In an effort to calm fears among Liberal Democrat MPs, Mr Clegg instead suggested that there would be “progressive” cuts similar to those brought in by centre-Left administrations in America, Sweden and Canada.