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EU condemns Brown's plans for spending
Treasury attacks 'doctrinaire' ruling
Gordon Brown was embroiled in a fresh row with the European commission yesterday after angrily rejecting a leaked report from Brussels condemning his ambitious plans for public spending.
The already frosty relations between the chancellor and the commission cooled still further when reports were published in Brussels of a draft assessment of Mr Brown's spending programme for the next three years.
In a pointed attack on the chancellor, the commission warned that the increases in borrowing to finance the extra investment risked breaching the 3%-of-GDP limit enforced on the 12 eurozone members.
The Treasury said the government had no intention of cutting public spending to meet a "doctrinaire" interpretation of the stability and growth pact.
It also dismissed suggestions by Brussels that Mr Brown's economic forecasts were too optimistic, saying that they were little different from the commission's own.
The report came at a highly sensitive time, with the Treasury now within five months of the deadline for assessing the government's five economic tests for entry into the single currency.
Treasury sources pointed out last night that one of the papers being prepared by its officials would assess how the stability pact would affect public spending in the UK.
According to the leak from Brussels, the commission will say that Mr Brown's plans could lead to a deficit close to the stability pact's upper limit of 3%.
It added that the plans would therefore be in breach of the pact's requirement for budgets to be close to balance or in surplus over the medium term.
While accepting that cyclical factors would affect the size of the UK's deficit in the short term, it said Mr Brown's forecast of 2.75% in 2003-04 was "optimistic" and could lead to a shortfall approaching 3%. The report urged the government to "aim for a medium-term budgetary deficit that is small enough to ensure that the 3% ceiling is not breached in any year".
A Treasury spokesman said: "We have always made clear that we reject an overly rigid interpretation of the stability pact which fails adequately to take into account the impact of the cycle, government debt and the important role of public investment."
In repeated clashes with the commission, Mr Brown has insisted that his plans to borrow for a sustained programme of capital spending on Britain's infrastructure is necessary and affordable. He has rejected calls that he should raise taxes to cover the extra spending as deflationary.
The new spat between the Treasury and the commission over the stability and growth pact came as a survey showed that British popular support for joining the European single currency has fallen to its lowest level for a year.