Brown breaking EU debt rules
GORDON Brown's reputation for prudence suffered a fresh blow today with confirmation he has broken Europe's budget rules for the first time.
Treasury coffers plunged £33.9bn into the red in 2003 against a £15.2bn deficit the previous year, according to figures from the Office for National Statistics.
That meant net borrowing as a proportion of gross domestic product rose to 3.1%, above the 3% ceiling stipulated by the European Union's Stability and Growth Pact. It is the first time this has been breached since Kenneth Clarke was Chancellor in 1996.
The City expects debt to hit 3.3% of GDP this year as the Government continues to pump money into health and education.
Though Britain is not a member of the euro, it is bound by the pact's rules. So the European Commission could demand measures to bring the deficit down, including spending cuts or tax rises, although this is unlikely.
Brown has argued debt should be allowed to rise during a downturn, such as Britain experienced last year, because extra public spending cushions the economy from the full impact of the slowdown.
A Treasury spokesman said today: 'We continue to support a prudent interpretation of the Stability and Growth Pact which takes into account the economic cycle, the importance of public investment and the level of debt.'
But ING Financial Markets economist Mark Cliffe, said: 'This will put more political pressure on Brown to curb spending or raise taxes shortly after the next General Election.'
Germany, France break rules
EUROPE'S Stability and Growth Pact was left for dead last November when Germany and France forced the suspension of the mechanism under which they could be fined for repeatedly breaching the deficit ceiling.
The European Commission has gone to court to question the legality of the decision in a move seen as a symptom of the growing mistrust and ill-feeling at the heart of Europe.
Germany has broken the pact for three consecutive years and has admitted it will struggle to keep its promise to meet the criteria by 2005. Meanwhile, France has been warned it risks breaking the rules every year until 2007 unless it does more to tame its budget deficit.
