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Brussels warns UK over budget failings as Germans handed a reprieve

Britain cautioned over breaching EU deficit limits, while eurozone’s biggest creditor will avoid punishment for running persistent surpluses

Britain will remain under the oversight of European Union budgetary authorities after failing to take enough “effective action” to reduce the hole in its public finances.

At 5.2pc of national output in 2014, the UK’s budget deficit was found in breach of the EU’s 3pc limit, and will stay under surveillance for the next two years.

Britain first fell foul of Europe’s fiscal rules in 2008 but was given a reprieve to rein in its spending in the wake of the global financial meltdown.

The UK’s deadline to reduce its financial shortfall was extended to last year, but the Government was told on Wednesday it had still “not taken effective action to correct the excessive deficit” by the European Commission.

 

The UK is among 11 countries, along with Greece, Spain and Portugal, under the “corrective” arm of the EU’s Excessive Deficit Procedure. Britain now has until 2016-17 to reach the desired 3pc target.

Pierre Moscovici, the EU’s economics chief, said Europe’s sanctions procedure was about “encouraging national efforts to deliver the jobs and growth that we collectively need”.

“These recommendations are not about Brussels lecturing governments,” he added.

Sitting outside the currency union, Britain is not subject to the sanctions or fines the EU can wield against eurozone member states. But the slap on the wrist could prove an embarrassment to the Conservative government, which has prided itself on its fiscal rectitude and is seeking to renegotiate Britain’s relationship with Europe.

Despite targeting “excessive imbalances”, Brussels has been criticised for not cracking down hard enough on economies that run persistent surpluses, and allowing too much flexibility for persistent offenders such as France.

Germany is set to avoid any punishment for running a current account surplus of close to 8pc this year – a modern-era high for Europe’s largest economy and above the 6pc limit.

The EU’s Macroeconomic Imbalance Procedure states that the Commission should launch infringement proceedings if a country has been in breach for three consecutive years. The German surplus has been above limits for six years, but the EC has decided not to escalate its actions against Berlin.

“Nobody can deny there is very strong economic performance in Germany, which cannot be punished,” said Mr Moscovici.

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