EU criticises deficit-cutting plans

The report by the European Union's executive said the fiscal programme failed to guarantee the country would meet an EU deadline of 2014-15 for cutting the deficit to below the bloc's cap of 3 percent of economic output.

The content of the report, reported by Reuters on Monday, hit sterling and prompted the Conservative opposition to accuse Brown of failing to keep public finances under control.

"The overall conclusion is that the fiscal strategy in the convergence programme is not sufficiently ambitious and needs to be significantly reinforced," the report said.

Britain's budget deficit is expected to exceed 12 percent of gross domestic product in 2010. Labour trails the Conservatives in opinion polls before the election, which is widely expected in May and must be held before the end of June.

"A credible timeframe for restoring public finances to a sustainable position requires substantial additional fiscal tightening measures beyond those currently planned," the Commission said.

Budget deficits are swelling across the EU after the global economic crisis undermined government revenues and fiscal stimulus programmes boosted spending.

The Commission said Britain should "strengthen the pace of medium-term consolidation in order to ensure that the deficit is brought below 3 percent of GDP by 2014/15 and the debt ratio is brought on a declining path."

It should also publish this year "the detailed departmental spending limits underlying the overall expenditure projections" for the period after 2010-11.

The government had defended its budget plans in response to the leaked draft, saying they took into account a need to support the economy through the downturn.

Shadow chancellor George Osborne called the news this week "a heavy blow for Gordon Brown's credibility."

SLOWER GROWTH, COSTLIER BANKING AID

Britain's plan envisages cutting the gap to 4.7 percent of gross domestic product in the fiscal year 2014-15 from 12.1 percent planned for 2010-2011.

But even this target may be missed because economic growth could turn out weaker than the government expects and government support for ailing banks could be costlier than planned.

"The achievement of the consolidation forecast by the UK authorities is further clouded by the likelihood that the macroeconomic context could be less favourable than envisaged by the authorities, as well as the uncertainties relating to the banking sector loans and investments insured by government," the report said.

The programme forecasts economic growth at 2.0 percent in 2010-11 and then 3.3 percent each year until 2014-15.

Brussels has little leverage to force Britain to follow recommendations made under the 27-country EU's budget discipline rules. Britain is not a member of the 16-nation euro zone so cannot be fined for breaching the deficit limit.

Labour delivers its budget on March 24 and is expected to underline its already-announced plan to halve the deficit over four years. But it also needs to rein in a debt level that is rising towards 70 percent of GDP.

The Commission's assessment will be studied by EU finance ministers. The ministers in theory can change the Commission's recommendation, but this happens rarely.

(Editing by Stephen Nisbet)