Can the Swedish playbook save our sinking state?

Britain is heading towards a fiscal crisis, and yet reforms remain elusive.

The Office for Budget Responsibility has issued repeated warnings: runaway spending on healthcare and welfare, exacerbated by an ageing population, is simply unsustainable. The IMF recently echoed this, calling for urgent spending reform. The UK’s budget deficit stands at 5.7% of GDP – the third highest among advanced economies – and national debt at 94%. On current trends, the deficit will exceed 20% and debt 270% of GDP by 2070. Sooner or later, this is all going to blow up in our faces. 

Britain is not the first country to have faced such a dilemma. Sweden, for example, offers a potent historical parallel – both revealing and alarming.

In the 1980s, Sweden was grappling with the consequences of an overgrown welfare state. Public expenditure spiralled from 31% of GDP in 1960 to 57% by the late 1980s – above the then OECD average of 45%. Economic strain soon followed: inflation surged, unemployment rose and high-net-worth individuals fled the country. By the early 1990s, public spending had ballooned to 70% of GDP, with social spending alone accounting for a third. To support this extraordinary state of affairs, the budget deficit exceeded 13% of GDP – a level that proved untenable when a banking crisis struck.

Sweden responded with remarkable resolve. Unemployment insurance was scaled back, disability benefits were tightened, and the pension system was completely overhauled. Within a few years, it slashed public expenditure by 20 percentage points, social spending to below 27% of GDP, and rebalanced into surplus.

Britain is not yet in a crisis, but the trajectory’s the same. Our public spending stands at 45% of GDP – slightly above the OECD average – while the tax burden will soon be 38% of GDP, the highest since the War. The last budget surplus was in 2000/01. Inflation warnings are flashing, and high-net-worth individuals are leaving. Yet there is little indication that the government is prepared to reimagine the scale and scope of the state.

The alarming truth is that we are on the edge of fiscal doom. Unlike Sweden, if a crisis were to hit tomorrow, we may not be able to dig ourselves out.

Sweden’s escape

Sweden’s success rested on a powerful narrative and consensus building. 

Reforms were framed as necessary to preserve the welfare state for future generations. Former finance minister Kjell-Olof Feldt, in his memoir ‘Everything Has a Price’, warned of fiscal recklessness and called for hard choices. Journalists and intellectuals echoed the calls. Because this messaging came from both left and right, it avoided being dismissed as a right-wing agenda.

Feldt also framed fiscal consolidation as a matter of sovereignty, portraying the self-financing of welfare as ‘honest money’. He warned increasing debt would rob the country and future generations of their freedom: a morally-charged framing which helped build social unity and buy-in from different groups.

Equally important was depoliticisation. Recognising the dangers of partisan gridlock, the government commissioned an independent panel of academics – the Lindbeck Commission – to diagnose the crisis and propose solutions. Its 113 recommendations, ranging from healthcare user fees to market liberalisation, provided an expert-backed foundation, legitimising the reforms. The Commission had political cover, and the politicians had the cover to act on its findings.

Pension reform followed a similar model. In 1991, a cross-party working group brought together Social Democrats, Moderates, Liberals, and others. Their deliberations were shielded from media scrutiny and point-scoring. As one architect, Bo Könberg, later observed, ‘No party achieved exactly what it wanted – everyone had to give and take’. The resulting notional defined contribution model linked pensions to life expectancy and earnings.

Two clear lessons emerge. First, unsustainable public spending is a prelude to crisis and forced reform (the prudent course is to rein in spending before that point). Second, even in the heat of the collapse, successful reform requires institutions and political parties willing to rise to the occasion and work across the divide.

Could Britain pull this off today?

Almost certainly not.

Where Sweden found cross-party consensus, Britain is mired in polarisation. Not just across parties, but within them. Labour is strained between factions and even minor spending cuts became politically impossible, despite the Government’s stonking majority. Starmer’s sacking of MPs who opposed welfare reform illustrates how brittle internal discipline remains; intra-party division has proven more paralysing than inter-party disagreement. 

This makes narrative-building nearly impossible. On the other side of the political spectrum, we see parties championing both spending cuts and welfare expansion – Reform support abolishing the two-child benefit cap, while the Tories oppose cuts to pensioner benefits such as the Winter Fuel Allowance. In this populist tug-of-war, any move toward fiscal responsibility can be easily framed as an elitist assault on the vulnerable, rather than a sober effort to secure the future. 

Compounding this is a deeper institutional malaise. In Sweden, the Lindbeck Commission commanded cross-party and public trust. In Britain, similar efforts have floundered. The Dilnot Review on social care and the Mirrlees Review on tax reform were serious undertakings, but yielded little real reform. Commissions have become political fig leaves, not engines of change.

Labour’s recent announcement on relaunching the pension review is instructive. The review may explore tying retirement to life expectancy – a sensible idea. But even before the report has landed, some ministers have ruled out raising the age further. This kind of pre-emptive pandering kills reform before it starts. Our commissions lack political backing, and our politicians lack public trust – hardly the foundations for social unity.

Consensus building seems more difficult if we consider the growing power of older voters. The UK’s political economy is skewed by age. In the 2024 election, turnout among voters aged over 65 reached 73%, compared to an average of 42% among those under 44. This imbalance is likely to worsen as the population continues to age. Any government that tries to trim pension, raise retirement age, or reduce entitlements will face an electoral backlash, further discouraging parties to push for bold spending cuts.

A warning

Britain today bears an unsettling resemblance to Sweden in the 1980s – a decade before crisis. Sweden waited until the eleventh hour, but when crisis hit, it acted with clarity and institutional strength. We too are waiting, but without the political consensus, institutional scaffolding or the public trust required to act. Unless something extraordinary forces our leaders to reform, the road ahead looks less like Sweden’s recovery, and more like crisis and decline.

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