European Commission tells Britain to cut budget deficit
The European Commission today challenged Britain’s public finances when it said it expected a deficit of 3.1 per cent of gross domestic product in 2006-07 - contrary to the forecast chancellor Gordon Brown made last month.
The EU executive said Britain’s budget deficit broke EU rules in 2004-05 for a second year in a row by running a deficit of 3.3 per cent when the economy was growing.
The deficit is likely to stay above the 3 per cent limit set by EU rules again this year, the Commission said, recommending that EU finance ministers tell London to rein in spending in 2006-07.
“Although the UK budgetary position is less worrying than that of others in the EU ... the Commission recommends that the UK deficit be declared excessive and the UK asked to correct the situation,” said EU Economic and Monetary Affairs Commissioner Joaquin Almunia.
The EU assessment of the British economy is an embarrassment for Brown. His pre-budget report predicted a deficit below 3 per cent.
Brown could not blame an “unusual event” or a severe economic downturn for its deficit even though gross debt at 40.8 per cent is well below the 60 per cent EU ceiling, the Commission said.
Britain’s “comfortable budget surplus in the late 1990s” went into a deficit of 3.2 per cent of gross domestic product in 2003-04 even though the country’s economy grew healthily.
The EU cannot fine Britain because the nation has not adopted the euro and is not bound by the same rules of the pact that underlines the euro. But it said the government has a legal duty to “endeavour to avoid excessive deficits”.
The British Treasury had insisted today that it was continuing to meet fiscal rules and forecasts were in line with a “prudent interpretation” of the EU budget agreement as it increased spending on building schools and hospitals.
“Over the past year, the UK’s current deficit has virtually halved and is projected to halve again over the coming year,” it said in a statement.
Britain forecasts the deficit to fall to 3 per cent in 2005-06, 2.7 per cent in 2006-07 and down to 1.5 per cent by 2010-11.
Britain escaped disciplinary action last year because the EU said the deficit was likely to be temporary.
