This paper was presented to a meeting on ‘Public Spending Cuts: Learning Lessons from Canada’ sponsored by the Barrow Cadbury Fund in London.

On the first anniversary of its election win, the UK coalition government shows no sign of reconsidering its extreme fiscal consolidation.  Cameron and Clegg's resolve is reportedly at least partly based on the example of Canada's elimination of its deficit in the mid-1990s.  But if the reasons for Canada's deficit-cutting success were properly understood, the coalition would instead today be pedalling briskly backwards rather than doggedly pressing on.

The secret of Canada's achievement in the mid-1990s is to be found neither in the steely resolve of our politicians nor in the mechanics of our cutting exercise: Deficit reduction worked in Canada because of the economic conditions prevailing at the time, including monetary policy, employment growth and rising exports.  In Canada, unlike the UK, economic growth was a precondition of fiscal consolidation, not a hoped-for outcome.