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June 9 - 15 2010

News

985

The Telegraph

The Telegraph

μNews

PAGES 2-13

μWorld News PAGES 14-17

μComment PAGES 18-21

μ Letters

PAGE 20

μObituaries PAGES 22-23

μ Features

PAGES 24-26

μCulture

PAGES 27-29

μExpat Life PAGES 30-32

μBusiness

μClassified

μPuzzles

μSport

PAGES 33-37

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PAGES 40-48

NEWS P11

Handy ejector seat Bond’s Aston Martin DB5 goes on sale — complete with gadgets

WORLD NEWS P15

Flashpoint: South Ossetia Georgia accuses Russia of preparing for new war

CULTURE P27

The killer inside me Michael Winterbottom on the violent thriller that’s caused a storm

EXPAT LIFE P30-31

Jersey & Guernsey Why the Budget could make the tax havens even more attractive

LOTTO 02/06

LOTTO 05/06

12 2 17 25 33 39 5 22 23 24 26 29

Bonus Ball 1

Bonus Ball 31

There was one winner of Wednesday’s £2.3m jackpot but no one won Saturday’s £4.1m prize

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By Andrew Porter Political Editor GEORGE OSBORNE is planning to eradicate Britain’s budget deficit by emulating Canada, where borrowing was brought under control within just three years by spending cuts of 20 per cent.

The Chancellor was due to announce on Tuesday a “once-in-a-generation” revolution in public spending inspired by Canada in the mid-1990s, when the government turned a budget deficit of nine per cent of GDP into a surplus.

Canada brought public spending under control guided by the principle that people should ask “what needs to be done by government and what we can afford to do”.

Mr Osborne and his Liberal Democrat deputy, Danny Alexander, will attempt to bring about a similar change of mindset in Britain.

The ambitious plan will be welcomed by those who believe swift and decisive action is necessary to bring Britain’s budget deficit and spiralling national debt under control quickly.

However, it is likely to prove controversial with those who believe it could tip Britain back into recession and public sector workers who face losing their jobs.

David Cameron warned on Monday that the scale of the problem is worse than he thought and the potential consequences even more critical. The Prime Minister said that the “momentous”

decisions he will take will have “enormous implications” that will affect everyone.

The new approach to public spending will see: ŠAn unprecedented public consultation exercise on what people expect from public services and where they think the cuts should fall. ŠA fundamental reevaluation of the relationship between government and the public sector. ŠA new “star chamber” of Cabinet ministers vetting every departmental budget. At the height of the Canadian debt crisis in 1994, the country had a budget deficit of around 9 per cent of GDP.

The following year, Jean Chrétien, the Liberal prime minister, unveiled what became known as the “bloodbath budget”, in which departmental spending was reduced by an average of 20 per cent.

By 1997 the deficit had been eradicated. However, health and education budgets were slashed and thousands in the public sector lost their jobs.

Mr Osborne and Mr Alexander were due to set out in detail on Tuesday how they intend to emulate this approach to cut Britain’s £156 billion budget deficit. They will announce the timetable for the public spending review this autumn, as well as a public consultation process.

Their plans will herald “a revolution in how public services are delivered”, according to a Treasury source.

The source added: “For 13 years spending reviews have suffered from the assumption that central government always knows best. The result has been falling public sector productivity and waste on an industrial scale. Anyone who

IN THE early 1990s, the Canadian government faced a financial crisis, with a budget deficit of $39billion (£25billion by today’s exchange rate) – or 9.1 per cent of its GDP. But a swift and effective cost-cutting programme turned this deficit into a surplus within three years, and pulled the country out of recession and into economic growth.

Aware that efficiency savings and pay freezes alone would be insufficient, Jean Chrétien, the prime minister, ordered that all non-essential national government spending be cut.

Central government departments saw their budgets cut by an average of 20 per cent. A handful of sectors – such as benefits for the elderly – were spared or saw their budgets increased, but only at the expense of more painful reductions elsewhere.

Under a system called Program Review, a committee of senior civil servants demanded that all departments nominate spending programmes that a lean national government should not be funding. They scrutinised these plans and recommended what schemes should be axed to a second committee of ministers, which in turn advised the prime minister. As provincial governments saw their health grants slashed, thousands of nurses were sacked and hospital waiting times soared. But Canadians credit the success of the programme to the speed and depth of the cuts.

Matthew Moore thinks the spending review is just about saving money is missing the point.

“This is a once-in-ageneration opportunity to transform the way that government works.”

Senior Conservatives, led by Mr Osborne, have examined the Canadian model while in opposition and have taken advice from those involved.

On Monday Mr Cameron delivered a speech on the economy in Milton Keynes, in which he said: “The decisions we make will affect every single person in our country. And the effects of those decisions will stay with us for years.

“It is precisely because these decisions are so momentous … I want to make sure we go about the urgent task of cutting our deficit in a way that is open, responsible and fair.”

He also warned that the problem of the deficit is worse than he feared, because Labour’s growth projections appear too optimistic. Independent estimates about the level of spending cuts that are needed in Britain suggest further parallels with Canada.

The Institute of Fiscal Studies said last month that cuts as high as 25 per cent for each Whitehall department would be needed by 2015.

While Mr Cameron has been blunt with his uncompromising message to the country, Nick Clegg, the Deputy Prime Minister, told a newspaper that the cuts would not be as savage as those of the Conservative governments of the 1980s.

In an effort to calm fears among Liberal Democrat MPs, Mr Clegg instead suggested that there would be “progressive” cuts similar to those brought in by centreLeft administrations in America, Sweden and Canada.

By Roland Gribben THE Foreign Office is becoming increasingly concerned that criticism towards BP over the Gulf of Mexico oil spill is threatening Anglo-US relations.

The scale and ferocity of the US attacks are said to have disturbed David Cameron, according to Whitehall sources.

Some American politicians have suggested that BP should be barred from future government contracts. The company is the biggest supplier of oil and gas to the US military with contracts worth $2 billion (£1.4 billion) a year. Such a move would be likely to benefit US rivals such as Exxon Mobil and Chevron. With American midterm elections only five months away, Whitehall officials are understood to be concerned that the issue is becoming a political football in the States. President Barack Obama has voiced his indignation at BP’s failure to stop the flow of oil more quickly.

Tony Hayward, BP’s chief executive, was called “the most hated and clueless man in America” by the New York Daily News. Protesters, angered at BP’s failure to stem the flow of oil, have been photographed stamping on the Union Flag. Support for BP from rival oil groups is also weakening as the industry faces the prospect of a halt to the expansion of offshore drilling.

There are also fears that there are wider implications for British business interests in the US. One Whitehall insider remarked at the weekend: “It’s not doing us any good.”

Downing Street has declined to comment on whether the issue has been raised between Mr Cameron and Mr Obama, but it is understood that the disaster has come up in discussions between William Hague, the Foreign Secretary, and his US counterpart, Hillary Clinton.

Vince Cable, the Business Secretary, warned that the crisis was having “major indirect effects” on the British economy, hurting the value of pension funds because of the toll it has taken on FTSE shares.

Interviewed on the BBC’s Andrew Marr Show on Sunday, Mr Hayward said the company had made an “absolute commitment” to clean up the oil and restore the Gulf coast.

He insisted that he had no plans to step down and said that despite seeing billions wiped off its stock market value, BP remained resilient.

Business, page 33