Whitehall cuts: what we can learn from Canada and Sweden

22 September 2010

The Spending Review is looming large over Whitehall. It is no surprise the current focus of attention is what the numbers are going to be. However, looking ahead, the bigger question will be how to implement the cuts.

At a recent seminar, we decided to take a look under the hood of the Swedish and Canadian consolidations in the 1990s and find out what their administrations actually did. Senior civil servants from both countries gave us much food for thought.

A tale of two countries

The event quickly brought out the very different approaches to reducing public spending taken by Sweden and Canada.

In Sweden, the focus was on reducing the cost of transfers (such as unemployment insurance), but leaving departments and agencies largely untouched in terms of staff numbers and service delivery.

The Canadians reduced some transfers and subsidies too. However they took a more fundamental look at what the government should no longer be doing or could do differently. This led to a radical re-think of how several federal departments operated.

The government here appears closer to the Canadian approach than the Swedish one. With cuts for most departments likely to average around 25% (and some departments could be much higher), it is clear business as usual is unsustainable. Transforming Whitehall and the wider network of service delivery it oversees will be vital.

The Swedish rationale

It is worth dwelling briefly on the rationale for the Swedish approach before moving on to the lessons from Canada. In the midst of an urgent crisis (interest rates temporarily spiked at 500%), the Swedes prioritised cutting back forms of spending that would yield an immediate, large and certain cash saving.

They felt cutting back – or even reshaping – the capacity and capabilities of government risked a difficult and uncertain journey which may well have harmed service delivery, and, more importantly increased the risk that their consolidation would fail.

It was this approach that allowed the Swedish government to achieve nearly half of its consolidation within the first financial year.

Lessons from Canada

The challenge the UK now faces is to avoid the risks of decimating services for no real gain.

Transport Canada cut its headcount by over 75% and its budget by 61%, whilst also being recognised by the Office of the Auditor General as a model for other departments. Specific policies (such as selling off assets and commercialising large areas of delivery) are inevitably unique to the particular context but several broad lessons emerged:

  • Plan ahead and settle early – Transport Canada went into Program Review with a clear plan of its own making; other departments that were more reluctant to engage in the process had not only the size but also the shape of the cuts imposed upon them from the centre
  • A coherent story to tell – having this helped to marshal efforts within the department and gave a broad direction of change for outside interest groups. ‘Vision’ was felt to be too grand a word given the complex and messy nature of any reorganisation. Communicating the story was said to consume about half of the deputy minister’s (equivalent to permanent secretary) time while implementing the cuts. Importantly, this was a case of communicating decisions that had already been taken by the department rather than consulting
  • Pace – plans will never be perfect and mistakes will be made, but it is vital to move quickly on the fundamental changes that need to take place and the loose ends can be tied up later
  • Greasing the wheels – Transport Canada realised far greater revenues from the sale of assets than expected and was allowed to keep a small proportion of the funds to help sweeten the pill for adversely affected interest groups. Similarly, offering generous terms was key to the process of making staff redundant or moving them out of the department

Bringing it home

A couple of notes of caution emerged.

First, the current context in the UK appears to be much more challenging than for Sweden and Canada in the 1990s. There are tougher economic conditions both at home and abroad and the depth of public acceptance of the need for cuts is more uncertain.

Second, Canada did not succeed at the first attempt. It was not until the sense of crisis was shared nationally that the cuts could be implemented.

Historical precedent need not be a straitjacket and the UK will take its own journey. One thing is clear though – as and when we succeed in cutting the deficit, Whitehall and the wider public sector will need to be reinvented and we will have our own story to share with the world.
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Comments (8)

  1. Liam Barrington-Bush on 22 September 2010 at 4:26 pm

    Having grown-up in the 1990s Canada described so clinically above(and having moved to the UK 4 years ago), I got to see the impacts of the Canadian approach to deficit cutting 1st hand. For all the theoretical economic debates posed, the numbers mean nothing without the human stories they created… The cuts involved:

    - the end of the National Affordable Housing Strategy
    - the beginnings of a semi-private health care system
    - a trend across provincial governments to axing vast portions of welfare, mental health services, drug programmes, youth services…

    As a result, Canada’s homeless population sky-rocketted, to a somewhere between 200 and 300 thousand. Youth violence shot up. Inequalities were vastly deepened, and have gotten worse since the Harper government decided that the same policies made sense, post-deficit…

    The fundamental problem I have with this purely numbers approach, is that it ignores the vast costs to the state once someone is living in the street, once someone has turned to crime, once someone is cast out of a mental health unit… It’s a lot harder to un-do inequality, than it is to create it.

    That is the real lessons from the Canadian context of the 1990s, that the UK government would do well to pay closer attention to…

    You can find my ‘Open Letter to Nick Clegg’ on the subject, from before the election, here: http://ohnocanada.wordpress.com/2010/03/20/open-letter-to-nick-clegg/

  2. Karl Wilding on 23 September 2010 at 8:04 am

    James
    Echoing the comments of Liam, you might be interested in this short account of the cuts as viewed from the perspective of the Canadian voluntary sector:

    Heard but not heeded: lessons for the UK from cutting the Canadian VCS http://bit.ly/9RXI8r

    The message from Peter Elson of Mount Royal University is not heartening; and in particular my understanding is that the govt/voluntary sector ‘accord’ (equivalent of the UK Compact) was simply ignored. Lets hope we can learn from that.

  3. Neil Rimmer on 27 September 2010 at 8:02 pm

    James, thank you for your commentary.

    I come at this mostly from a local government angle and we are working with Swedish, Canadian, Dutch, Japanese, Finnish and Australian colleagues to learn from their budget deficit experiences.

    At 10am on Wednesday 29th September we are holding a question and answer session on-line on the LG Improvement and Development Efficiency Exchange with a Swedish economist Stefan Ackerby. Stefan worked in their central government finance department, but who also has local government experience.

    When you read the comments above from those adversely affected by the Canadian cuts, it makes me even more convinced that their knowledge is an invaluable resource in the current climate and I would like to share this with as many people as possible.

  4. James Page on 28 September 2010 at 9:49 am

    Thanks for your comments. The impact of greatly reduced services on the most vulnerable and the perception of fairness across society will, ultimately, be the biggest tests of how the cuts are implemented.

    Sweden took both of these challenges head on. They did two things:

    - They went for an even balance of spending cuts and tax rises (as opposed to a ratio of about 80:20 here and in Canada in the 1990s) with the aim of protecting services for the poor where possible by asking the rich to pay more.

    - They also re-focused public spending, actually increasing spending on training and active labour market policies while cutting unemployment insurance to improve incentives to work.

    It is difficult to compare the overall impact on society between Canada and Sweden directly. However, while unemployment in Sweden certainly came down rapidly, there was still a large human cost with consequences that remain visible today.

    Roughly 15 years on from the Canadian and Swedish experiences, I wonder if there is some cause for optimism? I am particularly interested in two new ways of funding services. First, payment by results has the potential to open up service delivery to wholly new approaches and to replicate successful methods rapidly across the country. Second, new methods of raising finance (such as social impact bonds) raise the possibility of harnessing wealth for the benefit of the most vulnerable.

    I would be interested to hear your views.

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