Government rejects EU call to cut deficit faster

Government rejects EU call to cut deficit faster

Liam Byrne says European commission proposals were 'too aggressive' and could cause 'irreparable damage' to public services

Hélène Mulholland, Larry Elliott, Patrick Wintour and Julian Glover
guardian.co.uk,
Tuesday 16 March 2010 09.28 GMT

The government today rejected a warning from the European commission that Britain will fail to cut its deficit in accordance with EU rules.

According to leaks of a report last night, the commission will warn that the UK will not meet the 2014-15 deadline for reducing its budget deficit to below 3% of national output.

But Liam Byrne, the chief secretary to the Treasury, insisted today that the EU assessment was "wrong".

The suggestion that Britain had to find another £20bn of cuts by 2014-15 was "too aggressive" and could cause "irreparable damage" to public services, Byrne added.

The draft EU report, due to be approved by the commission but leaked to the news agency Reuters, warned: "A credible timeframe for restoring public finances to a sustainable position requires additional fiscal tightening measures beyond those currently planned."

The headline findings are likely to stoke what has become the pivotal political row between the two main parties ahead of next week's budget, and the subsequent general election campaign.

The report added: "The overall conclusion is that the fiscal strategy in the convergence programme is not sufficiently ambitious and needs to be significantly reinforced."

Byrne told BBC Radio 4's Today programme this morning that the scale of cuts proposed by Europe to reduce the budget deficit to below 3% of national output were equivalent to halving the education budget, or raising £20bn more in taxes on top of the 50p tax rate for high earners due to be introduced next month and the 0.5% rise in national insurance that is coming in next year.

He said: "We think that the EU has got the judgment wrong. We think the plan they have set out would require us to take out £20bn more out of the economy by 2014-15 and we believe that would do irreparable damage to public services or to taxpayers."

Under chancellor Alistair Darling's current proposals, the gap between spending and taxes would be reduced to 4.7% of gross domestic product, but the commission said that even this target might be missed as a result of weaker growth than the Treasury is expecting.

Byrne said: "We think that halving the deficit over four years is the right approach. It's not reckless. It's not painless either. What we have done is set out the clearest plans of G7 [countries] to deliver on that goal."

The Tories seized on the report to put pressure on Labour to "get on" with the job of speeding up the reduction of the structural deficit.

The shadow chancellor, George Osborne, claimed the report was a heavy blow for the prime minister. "The Conservatives have been arguing that we need to reduce our record budget deficit more quickly to support the recovery. Our argument is backed by credit rating agencies, business leaders, international investors and now the European commission. That is why we need a change of government to restore confidence in our economy at home and abroad."

Kenneth Clarke, the shadow business secretary, said cuts under the Tories "would be tough".

He told Today: "It's no good getting into this air of unreality: 'Oh, we can't do that' ... It is necessary to get rid of the structural deficit because if you don't do that interest rates will go up, we won't have economic recovery, you will have rising unemployment."

The EU commission assessment did provide some support for Darling in the run-up to next week's budget, by saying the plans for the coming fiscal year were adequate, although the findings will increase speculation in the markets that the election will be quickly followed by fresh measures to cut spending and raise taxes, whatever the result.

In general, though, the report will add to pressure on the prime minister at a time when Labour's new-year resurgence appears to have stalled. A new ICM poll for the Guardian shows the gap between the parties has increased to a nine-point Conservative lead over Labour. It also suggests that Brown's personal unpopularity with the electorate remains a drag on the party's standing, even though the Tories have been beset by their own problems in recent weeks.

While today's poll will be dispiriting for Labour, it is also clear that voters are not convinced by the Conservatives. The survey shows only 18% think Britain would be best served by a strong Labour win. And though almost a third think a clear Conservative victory would be best, 44% want a hung parliament in which the government works with smaller parties such as the Liberal Democrats.

David Cameron is 11 points ahead of Gordon Brown as the man voters want to win, and 20 points ahead as the leader best campaigning for "the votes of people like you". He has a 14-point lead as the most competent prime minister, and an 11-point lead as the man most likely to lead Britain in the right direction.

The figures call into question recent excitement about a Labour fightback. The Tories, at 40%, are up three on the February Guardian poll, and up two on another more recent ICM poll last weekend. The Liberal Democrats are on 20%, unchanged since the last Guardian/ICM poll, while support for other parties is on 9%. Conservative support has been within three points of 40% in all ICM polls since October.