The European Commission will tell Britain to do more to cut its ballooning budget deficit in the medium term, saying the country’s fiscal program lacks ambition, a draft from the EU executive showed on Monday.
The draft, obtained by Reuters two days before publication, said the program failed to guarantee Britain would meet a EU deadline of 2014-2015 for cutting the deficit to below the bloc’s cap of 3 percent of economic output.
“The overall conclusion is that the fiscal strategy in the convergence program is not sufficiently ambitious and needs to be significantly reinforced,” said the draft, expected to be approved by the Commission today.
“A credible timeframe for restoring public finances to a sustainable position requires additional fiscal tightening measures beyond those currently planned,” it said.
The British government defended its budget plans in response to the leaked draft, saying they took into account a need to support the economy through the downturn.
The opposition Conservative Party’s finance spokesman, George Osborne, called the news “a heavy blow for [British Prime Minister] Gordon Brown’s credibility.”
Britain’s plan envisages cutting the gap to 4.7 percent of GDP in the fiscal year 2014-2015 from 12.1 percent planned for this year and next year.
That means it will fail to meet the deadline given by EU finance ministers late last year.
This target could be missed because British economic growth could be lower than the government expects, the draft said.
“The achievement of the consolidation forecast by the UK authorities, is further clouded by the likelihood that the macroeconomic context could be less favorable than envisaged by the authorities, as well as the uncertainties relating to the banking sector loans and investments insured by the government,” it said.
The program forecasts economic growth at 2 percent in this year and next year, and then 3.3 percent each year until 2014-15.
An Exchequer spokesman said the government was committed to halving the deficit over four years and that such a cut would be the sharpest among G7 country.
“The Chancellor [of the Exchequer Alistair Darling] has taken a judgment on the appropriate pace of adjustment in 2010-11 and beyond,” the spokesman said.
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