By Chris Jones - 11th January 2006
Britain should tackle its excessive public deficit and bring it back below the EU threshold of three per cent of GDP, according to Brussels’ finance chief.
Almunia confirmed on Wednesday that the European Commission was recommending that London take steps to cut the 3.3 per cent deficit by the end of the 2006-2007 financial year.
“Although there has not been a lot of slippage in the UK deficit, Britain should take the necessary measures to address the problem now, before it gets worse,” Almunia told journalists.
Britain is not obliged to follow the commission’s recommendations, as it is not part of the eurogroup, but it is still required to “endeavour to avoid excessive deficits”.
The Spanish commissioner said he believed the Chancellor of the Exchequer would take the necessary measures to reduce the deficit.
“I know how Gordon Brown feels about rectifying deficit problems when the economy is strong, and fiscal 2006 looks like being a very good year for the UK economy,” he said.
“He knows what needs to be done without the need for recommendations from the commission, and I believe he will do it.”
But given his outspoken views on the relative strengths of sterling and the euro, Brown is unlikely to take any action that could be perceived as kowtowing to Brussels.
The chancellor, who is not a fan of the single currency, has frequently compared Britain’s strong economic growth with the weak performance from eurozone countries.
He has also questioned the commission’s methodology in assessing the size of the deficit.
Brussels does not include £1 billion in revenues from the sale of mobile telephone licences when calculating GDP, making its deficit figure 0.1 per cent greater than the UK treasury’s.
Almunia recognised that Britain was not a “serial offender” like France or Germany, but said that it was important to treat all countries the same way.
“The stability and growth pact applies to all member states.”
“The UK deficit is not large, and the siutation is not overly serious, but there are rules that have to be followed.”
“Deficits can be overlooked if they are temporary or caused by exceptional circumstances, but this is not the case with Britain so we have no choice but to recommend the excessive deficit procedure.”
Eleven other EU countries are already facing sanctions for their public deficits, including three of the bloc’s biggest economies – Germany, France and Italy.
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