EC issues stark warning to UK government over deficit


  By Angela Haggerty
The UK government must revise its strategy to cut the country’s debt deficit to avoid falling further behind European targets, according to a European Commission report which projected the UK would miss its deficit reduction target by three years.
The report made six recommendations for the UK to improve its economic performance, highlighting weaknesses in the housing market, infrastructure, access to business finance, support for low income households and youth unemployment.

The report said: “Fiscal consolidation remains a pressing challenge for the UK, and needs to be balanced with fairness and growth-promoting investment.  To provide the conditions for sustainable investment and export-led growth, the UK also needs to address the economy’s structural weaknesses, including a lack of housing supply, skills gaps, and the need to renew and upgrade transport and energy infrastructure.

“These and other shortcomings also contribute to the UK’s consistently weak net export position.  The current account deficit grew to 3.7 per cent of GDP in 2012 and the UK has a large goods trade deficit -6.9 per cent of GDP.”

Latest figures from the CBI showed UK retail sales fell at their fastest rate in more than a year in May, adding further gloom to April’s retail sales which were 1.3 per cent lower than in March.

Barry Williams, chair of the CBI distributive trades survey panel, said: “Retail sales growth has weakened since the start of the year as households continue to feel the pinch, with wages failing to keep pace with the cost of living.

“There is positivity from retailers this month, however, with sales expected to rise in the coming months.”

The European Commission report said UK household debt remained well above the Euro average and the government must provide better affordability and quality of childcare to enable women to take up full time employment.

The government was also urged to take action to tackle youth unemployment, which sits at two and a half times greater than the overall UK unemployment rate in the midst of emerging skills gaps in key economic areas, such as the digital and technology sectors, which have become major growth drivers internationally.

A need for “substantial investment” to upgrade the country’s transport and energy infrastructure was highlighted, both to replace ageing infrastructure and to meet lower carbon emission targets.

“Shortcomings in the capacity and quality of the UK’s transport networks are a structural problem for the economy, especially for goods producers, distributors and exporters,” the report said.

“There is currently a significant gap between committed funding, public and private, and the pipeline of transport investment needs which the government is seeking to address by prioritising public spending towards infrastructure and by attracting additional private investment.”

The UK is projected to meet its deficit reduction target in 2017/18 based on current economic trends and the Commission recommended more action from the government was required to stimulate growth while reducing debt, noting that the UK remained one of the most difficult countries in the EU for businesses to obtain bank credit.

The report followed news that the UK coalition is to press ahead with its controversial austerity plans which will mean a further £11.5bn of cuts by 2015.  UK Chancellor George Osborne has insisted the cuts are necessary in order to reduce UK government borrowing.  Details of where the axe will fall will be revealed in the Spending Review next month.

Speaking to the Daily Record, Labour MP Alistair Darling mounted an attack on the UK Chancellor, citing: “growth stalled, the economy bumping along the bottom and the number out of work growing”.

However the Better Together Head was accused of hypocrisy by SNP MSP Kenneth Gibson who said:

“One minute Alistair Darling says Scotland is better with Westminster making the decisions, the next he is attacking the damage being done by the UK government.

“He can’t have it both ways – but it is not surprising as we know this hypocrisy sums up the No campaign’s arguments.

“Anti-independence politicians are happy to attack the record of Westminster – but are still perpetuating the myth that Scotland is better with a Tory Westminster government that we didn’t vote for.”