'Start cutting now', says former Swedish premier

9 Jun 10
A deficit-slashing former Swedish prime minister has recommended that the UK government should start to cut spending and reform public services as soon as possible
By David Williams

9 June 2010

A deficit-slashing former Swedish prime minister has recommended that the UK government should start to cut spending and reform public services as soon as possible.

Speaking at the CIPFA annual conference on June 9, Göran Persson warned that without a swift reduction in expenditure, markets would punish the government ‘quicker than you would expect’.

He argued that an attack on sterling could do more economic harm than an early round of public spending cuts, in an apparent endorsement of the government’s commitment to begin making savings now.

Persson told delegates: ‘Those who are indebted are not free. We decided to cut as quickly as possible because we believe in politics. We don’t want the markets to run our welfare society.’

He added that the government should act before interest groups such as trade unions have time to mobilise.

But Robert Chote, director of the Institute for Fiscal Studies, told the same conference that the ‘jury is still out’ on whether early cuts would be beneficial or damaging.

Persson also advised the government not to be afraid to raise taxes, as an electorate would not punish an administration that raised taxes too far and then cut them back the following year.
And he attacked the decision to ring-fence some departmental budgets. ‘If you send a signal to huge parts of the public sector that they’re not affected, they will lay back,’ he said, adding that the cuts must be accompanied by broad structural reforms to ensure the sector was ready for the next crisis.

Asked about Chancellor George Osborne’s announcement this week that he would consult voters on where the axe should fall, Persson deadpanned: ‘Ah, the Canadian experience. Yes, do it – if you have the time.’

Martin Weale, director of the National Institute for Economic and Social Research, countered that cutting spending was easier for smaller countries such as Sweden. He said cuts were likely to have a bigger impact on a larger economy such as the UK’s, which depends more on exports.

‘Despite what’s happened in Greece, I don’t sense a desperate need to cut this year,’ he told Public Finance. But he agreed with Persson that ring-fencing was a ‘grave mistake’.

Weale added that markets rounding on the pound could bring benefits: ‘As the euro has been falling we’ve been weakening our competitive position in the euro area. For the British economy to recover successfully we have to have export-led demand – if sterling were to fall 10% against the euro I would be somewhat relieved.’

Persson held Sweden’s top office from 1996 to 2006 as leader of the centre-Left Swedish Social Democratic Party, following a two-year stint as finance minister. His administration implemented a controversial cuts programme that wiped out a 13% budget deficit in four years in the 1990s.

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