The European Commission said today that Britain risks breaching European Union deficit limits in the years ahead and that it could declare an excessive deficit against the country in 2003-2004.
The EU executive was giving its judgment on Britain's medium-term budget plans for the years 2002-2003 to 2008-2009 under the EU's Stability and Growth Pact. The pact sets a budget deficit limit of three per cent of gross domestic product.
"Despite the forecast reduction of the structural deficit, in no year of the (budget forecast) period will it be possible to have enough of a margin of manoeuvre to avoid the risk of going over the three per cent limit under normal macroeconomic fluctuations," the Commission said.
If a country breaches this limit, the Commission can start disciplinary steps to get the country to reduce the budget gap.
The Commission also said that Britain was forecasting a deficit of more than three per cent of GDP in fiscal year 2003-2004. If it also turned out to be more than three percent in the calendar year, the Commission said "there will be grounds to note an excessive deficit".
"In the same way, the budget forecasts of the programme update do not guarantee that the goal of a budget close to balance or in surplus will be respected for the whole of the period," it added.