EUROPEAN COMMISSION - Tells Britain to put a cap on spending

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Thursday 26 April 2001

EC tells Brown to curb spending
By Benedict Brogan, Political Correspondent

GORDON BROWN told Brussels not to interfere in British economic policy last night after the European Commission ordered the Chancellor to put a cap on public spending.

New rules to be discussed at next month's meeting of European foreign ministers would require the Chancellor to limit future expenditure to the forecasts set out in last month's Budget. The commission's intervention provoked government outrage. It was seen by Mr Brown as a deliberate attempt to meddle in domestic affairs, in particular tax and spending decisions, even though Britain is not a member of the single currency.

The document alarmed the Treasury because it will be seized on by Euro-sceptics as further evidence of the loss of fiscal sovereignty demanded by Brussels as part of closer European integration. Mr Brown ordered officials to rush out an unusually blunt public condemnation of the commission's initiative. It warned that Brussels had "over-reached itself" by interfering in British economic policy.

The Government is anxious to play down talk of closer economic integration because it fears it could cost it votes and enable William Hague to mount a "save the pound" campaign.

The EC's move caused surprise in Whitehall. Officials described it privately as "extraordinary" and setting a dangerous precedent. One official said: "We are not quite sure what game they are playing. Fiscal policy has got nothing to do with the commission. This is the first time the commission has tried to interfere in spending, and therefore tax policy, and we have got to see it off."

The 2001 Broad Economic Policy Guidelines, released yesterday by the commission, underline growing concerns in Brussels that Mr Brown's plans for a sharp increase in spending on public services breach EU rules laid out to protect the single currency.

In February Mr Brown was criticised by the rest of the EU for breaking the terms of the stability pact, which requires EU members - both those inside and outside the euro - to balance their budgets. The new restrictions go beyond the terms of the stability pact by setting explicit limits not just on how much the Government should spend in future, but by implication on tax policy.

Its document specified that Mr Brown's "budgetary policy should aim to ensure that the expected ratio of public sector current expenditure to GDP should not exceed, in 2002/03, the 37.3 per cent of the budget projections". It stressed that if spending on public services was going to double as planned by 2003/04, the Government should ensure "that the terms of the stability and growth pact continue to be respected".

Treasury sources said Mr Brown would seek to have the document amended by the time he met his EU counterparts on May 7 - the day before Tony Blair is expected to call the UK election.

In an official statement last night, a spokesman for the Treasury said: "We have noted the Commission's views and will be responding in due course. We do not accept that the Commission has any right to make recommendations concerning the ratio of public spending to GDP. This is entirely a matter of the individual member states and we believe the Commission has overreached itself on this occasion."

-- Anonymous, April 26, 2001


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