EC Adopts Report On UK Budget Deficit

by Ulrika Lomas, for LawAndTax-News.com, Brussels

23 September 2005

The European Commission on Wednesday adopted a report on the budgetary situation of the United Kingdom, following notification by the UK authorities last month that the general government deficit reached 3.2% of GDP in the 2004/05 financial year.

Under European Union rules, the Commission must draft a report when the 3% deficit limit is exceeded. However, as required by the Treaty, the Commission will wait for the opinion of the Economic and Financial Committee before forming its opinion on whether the UK deficit is excessive and whether recommendations ought to be issued.

This is the second consecutive year that the UK deficit is above 3%. In the financial year 2003/2004 it was also at 3.2% but, at the time, the Commission concluded, after consulting the Economic and Financial Committee, that no recommendations were necessary since it was considered that the deficit was close to the 3% reference value set in the Maastricht Treaty and likely to be temporary.

The report adopted this week by the Commission assesses the UK public accounts and indicates that the excess over 3% cannot be explained by the economic situation as domestic GDP growth was above potential in the last two years (3.2% in 2004 and 2.9% in 2005). Although the deficit is close to the reference value, it has been above 3% for the past two years and may not be corrected in the ongoing financial year.

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