In a damning indictment of the state of the UK’s finances, leaked draft documents conclude that the government’s fiscal programme “is not sufficiently ambitious and needs to be significantly reinforced”.
Under current proposals, Labour expects to reduce the deficit to 4.7 per cent of GDP by 2014-15 – missing an EU-imposed deadline to wrest the shortfall below three per cent of economic output in the next five years.
But the draft, expected to gain approval from the Commission tomorrow, poured cold water on the estimates, claiming that a lower-than-expected level of economic growth in the UK could put the country’s fiscal proposals behind schedule.
“The achievement of the consolidation forecast by the UK authorities is further clouded by the likelihood that the macroeconomic context could be less favourable than envisaged by the authorities, as well as the uncertainties relating to the banking sector loans and investments insured by the government,” the document says.
Shadow chancellor George Osborne last night seized on the report as evidence of growing support for the Tories’ more radical plans to start cutting the deficit immediately after a general election. “Our argument is backed by credit rating agencies, business leaders, international investors and now the European Commission,” said Osborne. “We need a change of government to restore confidence in our economy at home and abroad.”
The Conservatives are preparing to provide detail on spending cuts they would make this year if they come to power, with an announcement expected after next week’s Budget.
A Treasury spokesman yesterday defended chancellor Alistair Darling’s plans to tighten up the
public finances, saying: “As the chancellor has made clear, to withdraw support earlier and at the wrong pace risks wrecking the recovery – a judgement supported by the Commission.”
The EU’s verdict came after credit ratings agency Moody’s warned the UK and the US had moved “substantially” closer to losing their AAA ratings due to the rising cost of servicing their debt. But it said the top-level ratings are safe for now, sending sterling on a short rally against the dollar before it tanked on concerns over the UK’s economic and political outlook.