Britain must cut deficit faster, warns EU report

Blow for Labour as European Commission calls for faster spending cuts.

The government's plan to reduce Britain's £178bn budget deficit is not ambitious enough, the European Commission has said. In a blow to Labour's economic strategy, a report by the Commission warned that the UK was set to miss the 2014-15 deadline for reducing the deficit to below 3 per cent of national output. The deficit is expected to hit 12.6 per cent this year.

"A credible time frame for restoring public finances to a sustainable position requires additional fiscal tightening measures beyond those currently planned," said a draft report. It added: "The overall conclusion is that the fiscal strategy in the convergence programme is not sufficiently ambitious and needs to be significantly reinforced."

The government's proposals envisage the deficit being reduced to 4.7 per cent of gross domestic product, but the commission warned that weaker-than-expected growth meant even this target might be missed.

The Conservatives seized on the findings to claim that their call for the deficit to be reduced more quickly had been vindicated.

The shadow chancellor, George Osborne, said: "The Conservatives have been arguing that we need to reduce our record budget deficit more quickly to support the recovery. Our argument is backed by credit rating agencies, business leaders, international investors and now the European commission. That is why we need a change of government to restore confidence in our economy at home and abroad."

But ahead of next week's Budget, the Chancellor Alistair Darling, defended the government's deficit reduction plan and warned that cutting spending too early could halt the economic recovery.

"The chancellor's judgement on the pace of this adjustment takes into account the need to support the economy through the early stages of the recovery," a Treasury spokesman said.

"To withdraw support earlier and at the wrong pace risks wrecking the recovery - a judgement supported by the Commission."

Ministers have pledged to halve the deficit by 2013-14.