Britain has a huge and rising public deficit, a weak currency and a level of Government spending which is now unsustainable. Each of these features was present in early 1990’s Canada. George Osborne seems to view the Canadian Government response as an example to follow. Canada resolved its federal deficit problem in part by transferring responsibilities to its provinces. Could the Conservatives attempt something similar here?
1. Canada made across the board cuts – our coalition has protected spending items
The Canadian Programme Review primarily aimed to identify “what needs to be done by government.” Non essential Government spending was cut. No department was ring fenced or spared. All departments including the health and international development aid budgets were cut. Instead the British Government has chosen to ring fence health (politically very savvy) and international development (an elite obsession) from cuts. Both these departments will receive real terms increases in expenditure over the lifetime of this Parliament. This could reduce the sense of common sacrifice at the cabinet table. We must hope the
remit of the Department of Health and DFID is increased so savings can be achieved in these areas.
2. Canada devolved the cuts to strong local authorities i.e. the provinces. These were already providing health and education services
The Canadian Review of all Government programmes asked “Is the current role of the federal government appropriate or is the programme a candidate for realignment with the provinces?” The federal government then proceeded to cut grants to the provinces by a third. These provinces then either implemented the cuts or financed continued provision from their own resources. The LGiU estimate that twenty per cent of the £6.2 billion in cuts currently identified by the UK Government affect local authorities. Further cuts seem likely. These will probably be in project specific funding rather than the area based grant due to the complexity of the latter.
A key difference to Canada is that UK local authorities have a regrettably limited role in health and welfare provision. Central expenditure is not a supplement to local expenditure– it is the lone Governmental actor in some of these areas. Without devolution of these responsibilities to local authorities we will not be able to trial the range of different approaches necessary to deliver more for less. The coalition would do well to implement the proposals in the Centre for Policy Studies pamphlet A Magna Carta for Localism. This contains specific proposals to devolve further powers to local authorities. However, this still leaves the issue of how to fund these newly localised public services.
3. Local fiscal autonomy is the elephant in the room
It remains an important Conservative principle that politicians should be responsible for raising the money they spend. A key Canadian reform in the 1994 budget was to change the way federal transfers were made. Previously the federal government matched provincial spending dollar for dollar. If the province spent more the federal subsidy went up. After 1994 each province received a block grant. This reduced the incentive for a province to increase spending. In the UK, if welfare provision or a similar big Government programme is to be devolved then a key tax should also be transferred to local authorities to ensure it is funded e.g VAT. Localism should not mean the transfer of power to spend without the responsibility to tax. Canadian provinces had the power to set their own tax rates. While some chose to increase taxes to finance service provision, others such as Ontario actually reduced taxes in this period.
4. Canada curtailed local discretion in some sensitive areas
Sensitivity about healthcare provision was a feature of the Canadian model. The Canadian budget cuts were later accompanied by the Canadian Public Health Act 1995. This ruled out user charges for health services. This frustrated provinces such as Alberta and Quebec which were considering them. It mandated that health insurance should be administered by a public or not for profit entity. It also stipulated universal application. The province would pay the citizens healthcare bill whether they received care within the province or not (subject to the limitation that they would not spend more than the amount spent on an equivalent treatment in the province). In the UK similar measures may be introduced. Conservatives will need to decide what compromises (if any) we are willing to accept to facilitate the devolution of powers. Localism will create a postcode lottery. There will be a natural countervailing pressure to introduce measures to facilitate greater equalisation e.g. increased transfer payments or a restriction on user charges. How will we respond?
5. All Canadian provinces were subject to budget cuts
The Conservative move to engage the devolved administrations in the process of cutting public spending is welcome. However, the fairness of allowing the Scottish administration a one year moratorium on cuts is not. With autonomy comes responsibility. The price of greater freedoms for the devolved authorities should be a review of the current Whitehall transfer payments. The Barnett formula, which has ensured Soviet style levels of public expenditure in Scotland, should be scrapped. Conservatives of all stripes should see the case for Scottish services to be paid for at the expense of the Scottish taxpayer. English resentment is a powerful force and in this matter it is entirely justified. Scotland must not escape public spending cuts.
I believe the coalition should introduce a rebuttable presumption that all Government action should be taken at the local level by local politicians. However, localism should not be about devolving big government. All moves to localise should be in the context of reducing public expenditure. The Canadian experience offers a useful model in how to manage our transition to a more localist system. However, it must be adapted to meet our unique circumstances. The solution to our problems should be home grown.
The views expressed above are my personal views and not those of my employer or any other organisation with which I am associated.