EU casts doubt on Brown’s forecasts
The European Commission has cast doubt on the Treasury’s economic forecasts for the coming years.
The criticism comes in the EU executive’s “convergence report”, which assesses Britain’s readiness for embracing the single currency. This is required even though Britain is not a member of the Euro.
It suggests that Gordon Brown’s economic forecasts for growth and tax receipts are too optimistic. And, it predicts that the UK could again be above the three per cent budget deficit ceiling. The UK deficit is estimated to have been 3.2 per cent for 2003/04 and is predicted to drop to 2.9 per cent in 2004/05.
And it suggests that growth could be below the Treasury’s forecasts.
“All in all, the budgetary stance set out in the programme does not ensure that the Stability and Growth Pact’s medium-term objective of a budgetary position close to balance or in surplus is met and maintained. Nor does it seem to provide a sufficient safety margin against breaching the three per cent ceiling,” the commission argues.
However, it concludes that the gross debt ratio of 43 per cent is well under the EU’s limit of 60 per cent, adding: “The UK also appears to be in a relatively favourable position with regard to the long-term sustainability of its public finances.”
And, Joaquin Almunia, the EU’s monetary affairs commissioner, made it clear that the report would not harm Britain’s chances of joining the euro.
He told the Financial Times that: “You have some members of the euro area with public deficits in a worse position than Britain and public finances in the medium-run worse than the UK.
“These comments are not against Britain’s membership of the euro.”
In this round of assessments, the commission also considered the economies of Spain, Cyprus, Latvia, Lithuania and Slovenia. Its assessments will be on the agenda of the new EU finance ministers meeting on March 8.
The criticism is likely to be taken up by the opposition parties, particularly the Conservatives, who claim there is a ‘black hole’ in the public finances and taxes would have to rise in a Labour third term.
But, the Government is likely to remain relaxed about the report. The stock answer to previous critical reports has been that the Treasury forecasts have consistently proved more accurate than other expert assessments.
