The Canadian way

Canada: the vast, beautiful home of mounties, moose, ice hockey, maple syrup and Bryan Adams. With its wealth, super-clean, modern cities and picture postcard pastorals, prime minister David Cameron has singled out Canada as the country the UK should try to emulate.

This new-found love has nothing to do with a fondness for soft rock ballads, urban design or the great outdoors. It has everything to do with the economic turnaround Canada achieved in the mid-1990s by instigating a series of cuts dubbed ‘the bloodbath budget’.

Seventeen years ago, the country was facing economic meltdown. Much like the UK today, it was saddled with a crippling budget deficit of nine per cent of GDP and was warned by rating agency Moodys that it was on the brink of becoming a third world ‘banana republic’.

In 1993 the Canadian government took decisive action: it took the axe to its national budget in a way only a nation of lumberjacks could. Spending was slashed by 20 per cent across all government departments and by 1997 - in the space of just four years - the economy was successfully rescued from the jaws of debt-fuelled despair into producing a budget surplus and becoming the top economic performer of all the G7 countries in 2006.

This achievement is music to the ears of the Conservatives. In the run-up to the election, the party consulted former Canadian government officials about how they could apply the same principles to the UK. Now, Canada’s efforts are being hailed by Mr Cameron as the inspiration behind his own quest to cut Britain’s £156 billion budget deficit in a similarly swift, but brutal, effort. His newly formed ‘star chamber’ - a committee of four senior ministers whose job will be to test the budget claims of each government department - is an idea taken straight from across the Atlantic.

The fact that the Canadian government of the early 1990s was Liberal is an added bonus, enabling deputy prime minister Nick Clegg to sell the plans to his Liberal Democrats as ‘progressive’.

Hidden legacy
But in Canada there is a hidden legacy of the ‘bloodbath’ cuts - one that should drive fear into the heart of the UK housing sector. Today the country faces a homelessness crisis and has minimal social assistance and only a small, underinvested, social housing sector to help tackle it.

Official figures show that there are 150,000 homeless people in Canada - although some non-government organisations estimate the real number is double this. Homelessness costs the Canadian government between C$4.5 billion (£2.7 billion) and C$6 billion (£3.7 billion) a year in social costs. In cities such as Calgary a lack of affordable and social homes caused the homeless population to triple between 1994 to 3,436 people, when the budget cuts began to bite, and 2006.

In a bid to prevent a similar situation unfolding in the UK, Inside Housing is running its What’s the Benefit? campaign to ensure that the UK government’s cuts to its £21 billion housing benefit bill don’t drive thousands of vulnerable people from their homes and into poverty.

To avoid a homelessness crisis like Canada’s, housing experts on both sides of the Atlantic believe Mr Cameron and his colleagues must acknowledge how Canada’s drastic cuts led to social problems spanning decades.

‘The chancellor [George Osborne] has held Canada up as a model of deficit reduction, yet the cuts implemented in the mid-1990s had devastating consequences for housing which are still being felt today,’ says Kay Boycott, homelessness charity Shelter’s director of policy and campaigns. ‘Homelessness, previously a marginal problem, increased massively forcing the Canadian government to spend even more money in emergency funding. The country also faced a shortage of social housing when supply effectively ground to a halt.’

The cuts hit the Canadian housing sector particularly hard. In order to reduce its deficit quickly, Canada’s federal government transferred responsibility for spending - and the associated debt - to the lower tiers of government, the country’s autonomous self-governing regions.

The provincial, and then municipal governments, which, unlike local authorities in the UK, have considerable tax powers, were forced to make their own cuts and reduce the deficit through provincial taxes. ‘Overnight, the federal government ended the national housing programme and basically just said “we are no longer in the social housing business”,’ explains David Huchanski, professor of housing and community development at the University of Toronto.

‘There are some parallels here between the Canadian downloading and what your coalition government is doing,’ he notes, referring to Mr Cameron’s plans for localism and ‘big society’, which will see power handed to councils and communities.

Canada’s social housing budget was cut, and many social assistance programmes were terminated. Previously 25,000 social homes had been built every year - this suddenly dropped to zero. Social landlords, which own just six per cent of housing in Canada, were left to pick up the pieces at the financial mercy of local government.

‘Non-profit landlords were tipped upside down by the cuts,’ recalls Lindsey Reed, chief executive officer of the Social Housing Services Corporation in Ontario, a non-profit corporation led by social housing representatives.

‘Their independence was taken away. And the effect on tenants is only starting to emerge now. My view is that in Canada we no longer know what social housing is. Community housing is simply becoming supported housing as only the most desperate people get housed. What happened to Canada - the real outcome - was a growth in inequality,’ she says.

‘In Ontario we have 225,000 social housing units and 14 million people. The waiting list situation is horrible - it is always around 40,000. Your system in the UK is what I would like ours to be like. But I worry that you are going to do something negative to your system and follow us. That shouldn’t be allowed to happen,’ Ms Reed continues.

Stark warning
At the moment, there are very real fears that what happened in Canada could be duplicated in the UK. Already, the Homes and Communities Agency has had its budget slashed by £450 million meaning up to 6,000 affordable homes will not be built next year according to Labour. Waiting lists are growing by the day as a shortage of social and affordable homes starts to take its toll.

To make matters worse, the government’s axe has also fallen on the £21 billion housing benefit bill. From October 2011, the threshold for local housing allowance will be reduced and calculated using the bottom 30 per cent of rents rather than the median currently used. The allowance will also be linked to the consumer price index, rather than the higher retail price index and according to the Chartered Institute of Housing, this means that rents are likely to increase faster than benefits, so that eventually it will be impossible to pay rent with local housing allowance alone.

As a result, local authority councillors, MPs and charities are warning that, as in Canada, the UK could be left with a legacy of thousands of people being made homeless. ‘Those who can’t find accommodation at the limited rent will either have to pay from their inadequate income or become homeless’, warns councillor Larry Sanders of Oxfordshire Council on Inside Housing’s online petition.

While Canada has never had a directly comparable form of national housing payments for low income tenants, much of the social damage inflicted was a result of the social income support that was once in place, being cut. Under the Canadian system, eligible low-income families and those who are unemployed or vulnerable receive social assistance which includes funding for housing which can range from 28 per cent to 66 per cent of the overall benefit.

When the federal government cut its funding and delegated responsibility down to the provincial government, their response was to also cut benefits and change the already stringent qualifying formula so that fewer people were able to receive it, and those that did, would receive less.

‘It’s a story that has never really been properly told,’ says Sharon Chisholm, a knowledge exchange specialist at the centre for housing research at the University of St Andrews and former executive director of the Canadian Housing and Renewal Association, a non-governmental organisation that focuses on social housing.

‘Provinces were faced with the choice of capping either health, education or social assistance. Every province in Canada chose to cut social assistance by up to 50 per cent. If you make the mistake of cutting income for the people who are most deprived then you are going to be paying for that in a whole lot of different ways.’

Professor Huchanski describes social assistance in Canada as being ‘like a 19th century system - barely helping only the truly deserving’.

Any parallels between what’s already gone wrong in Canada and what could potentially happen in the UK are outrightly dismissed by the government. A Department of Work and Pensions spokesperson says: ‘It’s ridiculous to compare the Canadian and British systems of housing support. Canada has no equivalent to the housing benefit system which acts as a fundamental safety net against homelessness.’

Of course there are differences between the housing and benefits systems in the UK and Canada, but focusing on the country’s economic success while ignoring its social failures is a mistake.

‘The Canadian example should serve as a warning to this government that short-sighted cuts to housing will mean even bigger social and economic costs in the long term,’ sums up Shelter’s Ms Boycott.

Before taking a maple leaf out of Canada’s book, Mr Cameron would do well to look at the devastating long-term cost the ‘bloodbath budget’ had on social housing.

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