Brown faces UK deficit rap

By Stewart Fleming

Date: 19/01/06

The UK government will be rapped over the knuckles for running an excessive budget deficit at the meeting of EU finance ministers in Brussels next week (23-24 January). The British Chancellor of the Exchequer Gordon Brown will be told he must get the deficit under 3% by 2006-07.

The ruling will anger Brown who has been arguing that the EU's Stability and Growth Pact rules are inferior to the UK's budget yardstick, the 'golden rule' that the government borrowing and spending should be in balance over the economic cycle.

The criticism from Brussels, which follows the European Commission's finding on 11 January that an 'excessive deficit' exists in the UK, will be doubly unwelcome in London. The golden rule itself has come under credible criticism from groups including the National Institute for Social and Economic Research. Brown is also under attack from the rejuvenated Conservative party under new leader David Cameron.

The Commission itself is keen to play down the excessive deficit judgement against the UK since its deficit is only slightly out of line. Its ruling said that, measured against the UK gross domestic product (GDP), the deficit was 3.3% in 2003-04 and 3.2% in 2004-05, and that it will rise to 3.4% in 2005-06 and remain (slightly) above the Maastricht Treaty reference level of 3% in 2006-07. The UK debt to GDP ratio of around 40% in 2004-05 is well below the 60% limit established by the treaty.

Separately, on the evening before the Ecofin, the long-running debate over monetary policy will resume at the Eurogroup meeting of finance ministers from countries which are members of the single currency.

Article anticipates the meeting of EU Finance Ministers at the Ecofin Council on 23-24 January. One of the items on the agenda was the UK's excessive budgetary deficit identified by the European Commission on 11 January 2006.

European Commission: DG Economic and Financial Affairs: Activities: Fiscal surveillance: Ongoing procedures under article 104 of the Treaty (Excessive Deficit Procedure): United Kingdom http://ec.europa.eu/comm/economy_finance/about/activities/sgp/edp/edpuk_en.htm

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