Gordon Brown, the UK chancellor of the exchequer, faces embarrassing censure from the European Commission next week, when Brussels will recommend the launch of an excessive deficit procedure against Britain for its failure to keep public borrowing below 3 per cent of gross domestic product.
Britain is on track to break the budget deficit ceiling enshrined in the European Union’s stability and growth pact for four years running, according to the latest Commission estimates.
Borrowing reached 3.2 per cent of GDP in the financial years to March 2004 and March 2005, and is expected to rise to 3.4 per cent in 2005-2006. The deficit is also expected to remain above 3 per cent in the fiscal year 2006-2007.
These predictions mean the Commission will now formally call on EU finance ministers to declare that Britain is running an “excessive deficit”. It will also urge member states to tell London to bring borrowing below the 3 per cent threshold by 2006-2007 – one year earlier than forecast.
Brussels had previously shied away from such a step, arguing that Britain’s deficit was temporary. However, the recent deterioration in the country’s public finances means that excuse is no longer acceptable to the Commission, which is tasked with upholding the strictures of the stability pact.
The UK is bound by the pact’s provisions, even though it is not a member of the 12-member eurozone. However, unlike the governments that have adopted the single currency, Britain cannot be financially penalised.
Mr Brown will also be spared the embarrassment of seeing the Commission issue formal recommendations on how to change the country’s fiscal policies.
But the Commission’s move, expected to be confirmed at a meeting in Brussels next Wednesday, is still a blow to the chancellor. Mr Brown has repeatedly chided his European colleagues for their policies, sparking irritation in Brussels and other EU capitals.
A Treasury spokesman said on Thursday: “As the government set out in the pre-Budget report last month, we continue to meet our fiscal rules over the cycle, with the public finances sustainable and increases in public investment fully affordable.
“The government’s projections are fully consistent with a prudent interpretation of the stability and growth pact, while the UK continues to have the lowest average debts and deficits of any other major European economy since 1997.”
The Commission is expected to argue, however, that the rise in public investment does not fully account for the recent spike in borrowing.
Mr Brown’s predicament is less acute than that faced by France and Germany, which have been in breach of the pact since 2002, and Greece and Portugal, which have recorded borrowing far in excess of the threshold.
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