Ministers reject EU call to cut deficit by £26bn

THE EUROPEAN Commission’s declaration, due to be published officially today, that the British Government needs to cut £26 billion…

THE EUROPEAN Commission’s declaration, due to be published officially today, that the British Government needs to cut £26 billion (€29bn) more than it currently plans in order to bring its deficit under control over the next four years, has been strongly rejected by leading ministers. They warned it would do “irreparable damage” to public services and the public.

In its ruling, the commission said the British tax and spending cuts plan – to reduce the deficit to 4.7 per cent of gross domestic product by 2014/15 – is “not sufficiently ambitious and needs to be significantly reinforced”, and, in any event, it could be thrown off-track because British growth projections are too optimistic.

“The achievement of the consolidation forecast by the UK authorities is further clouded by the likelihood that the macroeconomic context could be less favourable than envisaged by the authorities, as well as the uncertainties relating to the banking sector loans and investments insured by the government,” the commission document says.

The commission’s view sparked a fall in sterling’s value against the dollar and the euro for some hours on international markets yesterday, but it recovered and eventually strengthened on the back of a new series of opinion polls that indicate that the Conservatives will win the general election and that the UK will avoid a hung parliament.

READ MORE

Responding to the commission, the chief secretary to the treasury, Liam Byrne, said: “We think the EU has got the judgment wrong. We think the plan that they’ve set out would require us to take something like £20 billion more out of the economy by 2014-15 and we think that would do irreparable damage to public services or to taxpayers.”

If followed, the commission’s recommendation would remove more than half of the British education budget. “We think that halving the deficit over four years is the right approach. We think that is not reckless. It’s not painless, either.”

Chancellor of the exchequer Alistair Darling said in Brussels: “We are doing it in a way which is sustainable, manageable, and which does not damage the social and economic fabric of our country. My judgment is that this is the right thing to do, and that judgment is shared by many economic commentators: the commission advice is wrong.”

Describing the commission’s recommendations as common sense, Conservative shadow business secretary Ken Clarke said: “It is necessary to get rid of the structural deficit. If you don’t do that, interest rates will go up, you won’t have any economic recovery.”

However, Liberal Democrat leader Nick Clegg said the imposition of drastic cuts without the agreement of the public could spark Greek-style anger.

Mark Hennessy

Mark Hennessy

Mark Hennessy is Ireland and Britain Editor with The Irish Times