Spending restraint is considered more effective than tax rises in reducing state debt and improving economic growth, according to a newly released Treasury paper.
The paper, drawn up in September last year, looks at the measures taken by countries around the world that successfully “consolidated” their finances after building up dangerous levels of debt.
The countries - Finland, Sweden, Belgium, Canada, Iceland, Ireland, the Netherlands, Spain and New Zealand - slashed public spending by between 3 per cent and 14 per cent, with reductions in public sector employment and investment as well as cuts in health, education and benefits in some cases.
The paper says: “There is broad agreement in the literature that spending restraint is more likely to generate lasting fiscal consolidation and better economic performance than tax increases.”
No conclusions or recommendations for UK policy were revealed in the document released under Freedom of Information legislation yesterday.
A large section of the paper, entitled “emerging themes”, was blacked out before its publication on the Treasury website, as were paragraphs outlining the “key lessons” from each of the countries studied.
The paper was prepared by Treasury officials ahead of Alistair Darling’s December pre-Budget report, in which the chancellor announced a one-off 50 per cent tax on bankers’ bonuses and said a planned 0.5 per cent National Insurance hike in 2011 would be increased to 1 per cent.