Government exceeds EU borrowing limit
The government has exceeded European Union borrowing limits, new figures from the Office of National Statistics (ONS) reveal today.
Under the terms of the Maastricht Treaty and the Stability and Growth Pact, the UK could even face financial sanctions for this level of borrowing – although the chances of this happening are remote.
Critics have used the figures to attack the chancellor’s handling of the nation’s finances.
But the government insists that a “prudent” interpretation of the pact, taking into account other factors, would suggest the public finances are healthy.
Shadow chancellor George Osbourne said: “Gordon Brown likes nothing better than to lecture other European countries about their economic policies.
“But his own mismanagement of the public finances has caused Britain to breach the Maastricht Treaty’s borrowing limits for the second year in a row.”
The ONS figures predicted that for the financial year 2004/05 general government net borrowing would be £36.7 billion, as measured on the Maastricht Treaty and Stability and Growth Pact bases.
This is a small increase on the previous year’s figures of £34.7 billion.
This saw the “government deficit” – as the Maastricht Treaty would describe it – rise to 3.1 per cent of gross domestic product (GDP), the same as the year before.
The treaty defines any deficit above three per cent as “excessive”.
However, there are two criteria for excessive deficits. These are a deficit to GDP ratio of three per cent, and a gross debt to GDP ratio of 60 per cent.
While the estimate for 2004/5 puts the first measure at “excessive” levels, on the gross debt to GDP ratio the UK is substantially below the 60 per cent cut off. As a percentage of GDP, gross debt rose last year – for the first time since 1996/7 – but it stands at just 40.8 per cent, well below the target level.
And a spokesman for the Treasury told politics.co.uk that the government believed in a “prudent” interpretation of Stability and Growth Pact, taking into account the economic cycle, the long-term sustainability of public finances and the important role of public investment.
“The public finance projections set out in 2005 budget show the government is meeting its fiscal rules over the cycle, that the public finances are sustainable and that the increases in public investment are affordable,” he said.
The Stability and Growth pact was adopted in 1997, designed to enforce budgetary discipline among the countries intending to enter the single European currency.
