UK budget deficit breaks EU rules

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A report on the UK economy says the deficit stood at 3.2% of national wealth in March - above the maximum permitted 3% agreed by EU governments to help keep Europe's national economies in shape.

The Commission is powerless to levy fines on the UK Treasury because Britain is not part of the euro.

The latest report, a routine spring assessment of the UK economy, follows a damning report from the OECD about the current state of the nation's finances.

The Commission acknowledged that, at 3.2% in March, the budget deficit remained fairly close to the accepted 3% limit but the report pointed out that the deficit is likely to rise another 0.2% in 2008/09 thanks to a "fiscal relaxation" announced by the Government last month.

The Brussels economic rules allow for short-term "exceptional" jumps in national deficits.

But the Commission insisted that the UK economic situation cannot be considered either temporary or exceptional.

Therefore, says the Commission, the EU's deficit rules are not being met. All EU member states are governed by deficit criteria set up under a controversial "Stability and Gross Pack", under which many national exchequers have been rapped over the knuckles.

The Commission has the power to impose fines for significant failure to keep to the rules - but only for countries which are part of the euro-zone.

That means no sanctions can be levied against the UK, but the Treasury will not appreciate being ticked off by Brussels.