Europe tells Britain to cut budget deficit

BRITAIN was told by the European Commission that it must comply with EU rules and cut its budget deficit for the next year.

Chancellor Gordon Brown last month budgeted for a deficit of 3.1% of GDP for 2006/07 which is 0.1% above the limit set by the EU. This will be the third year in a row it exceeds the limit.

There are now 12 of the 25 member states with excessive deficits, 12 of them are new members and five are in the eurozone.

The Economic and Monetary Affairs Commissioner, Joaquin Almunia, agreed he had no power to compel Mr Brown to rein in his budget or fine Britain as it is not a member of the eurozone.

"[Britain] has to comply with the rules and I am sure that it will if the Council [of Finance Ministers] endorses my recommendation and I am sure they will comply not because of any threat of sanctions but because it's the best thing to do," said Mr Almunia.

While the deficit was close to the reference value, it did not result from a severe economic downturn, Mr Almunia said.

The British Treasury said it was continuing to meet fiscal rules and its forecasts were in line with a prudent interpretation of the EU budget agreement as it increased spending on building schools and hospitals.

Over the coming months, the commission will assess the stability programmes of each member state to ensure they comply with EU budget rules.

Among the seven countries reviewed yesterday, Finland, Denmark and Sweden met the requirements, while the Czech Republic, Slovakia and Britain did not.