The Government is not doing enough to curb the UK’s spiralling debts, the European Commission said today. In a new report that is likely to go down like a lead balloon in Downing Street, the Commission argued that Britain will be in breach of the EU’s financial stability rules by 2014 unless we come up with a more ambitious plan to balance the books. Now you might argue that the Eurozone’s economic pointy-heads should be worrying about their own problems. But however much the Treasury insists that the EU has got it all wrong, this is all a bit embarrassing in the week before its pre-Election Budget…
You may well wonder why this is any of the Commission's business, since we're not part of the Eurozone (which has issues of its own at the moment, of course). However, we're still bound by the EU’s financial stability rules, which dictate that the UK’s budget deficit should be no higher than 3% of GDP by 2014. This year we’re running at almost 13% (which makes even Greece look prudent) – and based on the Treasury’s latest predictions, the deficit will only be down to about 4.7% by 2015. Oh, and the Commission also claimed that the Government’s current growth forecasts are way too optimistic, which would mean that we have less chance of hitting our existing targets anyway.
Naturally, the Government begs to differ. Chief Treasury Secretary Liam Byrne told the Today programme that the report was ‘wrong’: it would involve the Government finding an extra £20bn of cuts, which, he said (invoking the Government’s favourite mantra) would risk derailing the recovery. Nonetheless, the Commission’s intervention is a godsend for the Tories – after weeks of being on the back foot over the economy, they can now claim that international opinion is on their side about the extent of the cuts required. And as the Lib Dems’ Vince Cable pointed out, Gordon Brown has often boasted that he led the world on dealing with the recession – so criticism from leading international institutions ‘is humiliating, frankly’.
The news (coupled with yesterday’s suggestion from the MPC’s Kate Barker that the economy could go backwards again) briefly sent the pound down below $1.50 again this morning (prompting lots of unnecessary stories about sterling being hammered, despite it actually remaining above recent lows). However, at time of writing it’s actually rebounded above $1.51. Perhaps investors think this little episode has reduced the chances of a hung parliament after the Election...
In today's bulletin:
EU embarrasses Government by slamming deficit plan
Slasher Voser continues his shake-up of sluggish Shell
Debenhams sales up after returning to first Principles
Public sector has 22% of workers - but 37% of employment appeals
MT talks to GGR's Gill Riley