EU says tax cut, borrowing to push UK deficit past EU guideline
British plans to cut income tax and borrow more will see its yearly budget deficit shoot past a European Union guideline this year.
By Agencies |
BRUSSELS: British plans to cut income tax and borrow more will see its yearly budget deficit shoot past a European Union guideline this year, the European Commission warned on Wednesday.
The EU's top economy official Joaquin Almunia said Britain's public finances had deteriorated over the past year as he put out a report saying Britain was running up a deficit as growth slows.
The EU executive is now asking EU finance ministers to warn Britain for deliberately running a deficit above 3 per cent of gross domestic product in the fiscal year ending April 2009.
It said it believes the deficit, the yearly difference between how much a government rakes in and how much it spends, will hit at least 3.3 per cent in 2008-2009 and 2009-2010.
That could go even higher to 3.5 per cent this year, it warned, because plans to reduce personal income tax this year will be financed by extra borrowing.
At the same time, the EU says the British economy will slow "below potential" as households cool spending because of higher prices for basic goods energy and food while the housing market weakens and credit conditions tighten.
The weaker pound should help exports but this will not be able to fully compensate for the spending slowdown, it said, as banks hit hard by a credit crisis cut back on mortgage loans.
Only one other European Union country Hungary also has an excessive deficit. EU countries are asked to stick to the limit although they do not face sanctions nor the same pressure as euro-zone nations to keep their debt and deficit low.
Britain's overall public debt is well under the EU limit of 60 percent of GDP although it is expected to rise to 46 percent this fiscal year.
But the European Commission said it is still to decide whether the Bank of England's 24.1 billion (euro30.4 billion; US$47.2 billion) or 1.7 per cent of GDP loan to troubled mortgage lender Northern Rock should have been reported as government debt.
Britain nationalized the bank in February after it faced a bank run and near-collapse in the wake of a financial market crisis that has made banks reluctant to loan to each other.
The EU said Bank of England and Treasury guarantees to the bank's creditors totaling about 30 billion pounds (euro37.9 billion; US$58.8 billion) or 2 per cent of GDP were also a possible liability for government debt.
The EU's top economy official Joaquin Almunia said Britain's public finances had deteriorated over the past year as he put out a report saying Britain was running up a deficit as growth slows.
The EU executive is now asking EU finance ministers to warn Britain for deliberately running a deficit above 3 per cent of gross domestic product in the fiscal year ending April 2009.
It said it believes the deficit, the yearly difference between how much a government rakes in and how much it spends, will hit at least 3.3 per cent in 2008-2009 and 2009-2010.
That could go even higher to 3.5 per cent this year, it warned, because plans to reduce personal income tax this year will be financed by extra borrowing.
At the same time, the EU says the British economy will slow "below potential" as households cool spending because of higher prices for basic goods energy and food while the housing market weakens and credit conditions tighten.
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The weaker pound should help exports but this will not be able to fully compensate for the spending slowdown, it said, as banks hit hard by a credit crisis cut back on mortgage loans.
Only one other European Union country Hungary also has an excessive deficit. EU countries are asked to stick to the limit although they do not face sanctions nor the same pressure as euro-zone nations to keep their debt and deficit low.
Britain's overall public debt is well under the EU limit of 60 percent of GDP although it is expected to rise to 46 percent this fiscal year.
But the European Commission said it is still to decide whether the Bank of England's 24.1 billion (euro30.4 billion; US$47.2 billion) or 1.7 per cent of GDP loan to troubled mortgage lender Northern Rock should have been reported as government debt.
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Britain nationalized the bank in February after it faced a bank run and near-collapse in the wake of a financial market crisis that has made banks reluctant to loan to each other.
The EU said Bank of England and Treasury guarantees to the bank's creditors totaling about 30 billion pounds (euro37.9 billion; US$58.8 billion) or 2 per cent of GDP were also a possible liability for government debt.
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