The ‘Canadian model’ for spending cuts: learning the right lessons

There has been a good deal in the news over the last few days about how the UK Government is following the ‘Canadian model’ in planning its spending cuts (see here and here for a couple of examples).  Its approach seems based on the idea of ministerial committees and a ‘star chamber’ – mechanisms that serve to ensure all ministers are party to the decisions and can’t then seek to undermine or attack them without losing all credibility.  I got interested in this case some years ago, when I started interviewing in Canada, as the effect it had on relations between the federal and Provincial governments was serious and long-lasting.  It’s worth noting that these applied within a single party, the Liberals, in the Canadian case.  While the need to avoid the two parties in a coalition undermining a government policy is greater, so are the pressures on that policy.  It will be interesting to see if these mechanisms can in fact accomplish that in the UK.

But there is one key respect in which what happened in Canada is fundamentally different to what will happen in the UK.  One key upshot of the Canadian debates and consultations was to cut federal spending on something that the federal government didn’t do.  The cuts were most heavily borne in health and education spending.  These are not (and were not) responsibilities of the federal government.  Constitutionally, they were exclusive jurisdictions of the Provinces.  It was federal transfers to the Provinces that bore these cuts.  (Defence also took a big hit, one should add.)  This was an easy cut for the federal government to make politically, as the blame for worsened services was also transferred to the services.  That of course isn’t possible in the UK; the UK Government is responsible for services in England that are devolved in Scotland, Wales and Northern Ireland.  Added to this, among the Provinces there was great bitterness about the way the cuts were made – by unilateral action by the federal government, announced with scant prior notice in the federal budget.  The Provinces suddenly learned that grants to them were being cut, with no (immediate) financial compensation, although the budget that did this wasn’t theirs, nor was the deficit that created the need for it.  The bitterness this created was deep, and something officials were still eager to talk about several years later.

It’s encouraging to see that a meeting of the plenary Joint Ministerial Committee appears to be happening today (see here and here), which is intended primarily to discuss cuts.  That sort of engagement with the UK’s devolved administrations is encouraging.  (A plenary JMC was due this month in any case, but following Cameron’s early visits to the devolved capitals it indicates a commitment to serious dialogue that was a rarity under Labour.)  The question will be how that is sustained.  What we have at present is a system of allocating funding to the devolved government that in all essentials is still an interdepartmental one.  This needs to operate so as to treat the devolved administrations at least as well as Whitehall departments if it is to be effective in these circumstances.  That would imply devolved ministers sitting on those ‘star chamber’ committees, uncomfortable as that may be for everyone.  As devolved and UK finances haven’t been disentangled, that is the logical implication to the sorts of decisions now being made.

The effect in Canada of cutting funding for key social programmes was to transfer responsibility for these much more clearly to the Provinces.   That had two consequences.  One was on policy: increasing policy divergence, in the absence of the sort of leadership that the federal government had been able to secure by largely paying for it.  Education spending and systems diverge much more across Canada as a result of the 1995 budget than they did before.  Health varies rather less, thanks to the terms of the Canada Health Act (which sets out general principles for the operation of the health system there), but this is also subject to huge pressure  – Alberta and Quebec, in particular, have repeatedly sought to introduce various sorts of user fees even though these are prohibited by the Act.

The other was financial.  Provinces, reluctant to make drastic cuts, sought to increase their own revenues to pay for them.  That meant pressure for enhanced fiscal autonomy to the Provinces, accomplished by the transfer of additional tax points.  As the fiscal capacity of the Provinces varies widely, that in turn led to subsequent pressure to enhance the Equalization system to compensate the poorer Provinces for their weaker tax bases.

On one point the Coalition UK Government has drawn exactly the right lesson: that making cuts on the scale they propose reshapes the state, and needs wide consultation.   The question to be drawn from the Canadian parallel is whether the federal government there would have made the cuts it made if it had known the effects they would have 10 or 15 years later, on the Canadian state in general and on relations with the Provinces in particular.

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Filed under Comparisons from abroad, Conservatives, Devolution finance, Lib Dems, Northern Ireland, Policy issues, Scotland, Wales

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