Precedents

It seems that shadow Chancellor George Osborne, perhaps among things, has been considering Canada and Sweden as models of countries which restored their finances from perilous situations in just few years.

Canada in the early 1990s recession undertook retrenchment in government spending after the public finances became seriously unbalanced. The annual budget deficit had reached 9.1% of GDP, and public spending was 70% of GDP.

The government of Jean Chretien decided that mere efficiency savings would be insufficient. Any government spending which could be delivered differently or was not essential was cut. Health spending was virtually all protected.

The result was that the budget deficit was cut to zero in just three years and public debt was reduced by a third in five years.

In Sweden in 1993 the annual budget deficit was 10%, - even higher than in Canada. The government under Goran Persson embarked on a drive to cut this deficit and restore balance. He cut red tape which was holding back Swedish industry, promoted the use of information technology and increased the skills and education of the Swedish workers.

The result was that the deficit had been completely removed within four years.

Sacred cows were sacrificed, pain was endured, but the Canadian and Swedish economies emerged in balance and with better long-term prospects.

Could Britain achieve this? We have a bigger mountain to climb. The budget deficit is likely to be about 14% of GDP, significantly higher than in either of the other two countries, because we had a government running deficits before we reached recession. National debt will have more than doubled, and even if we accept the Brownian idea that future obligations are not debts, it looks as if it will significantly exceed GDP. We are in a far worse situation than we were in 1976, when Mr. Healy was forced to go cap-in-hand to the IMF to be bailed out.

On both measures Britain is significantly more sick. Add in a 12 year neglect of new energy provision, and we cannot allow the debt to rise more by budget deficit. The problem must be attacked immediately.