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Government rejects EU calls for more fiscal cuts

LONDON (Reuters) - The government rejected on Tuesday calls by the European Commission for it to do more to cut its ballooning budget deficit in the medium term, saying such action would damage public services.

Prime Minister Gordon Brown casts his shadow on an European Union flag as he addresses a news conference before bilateral talks with German Chancellor Chancellor Angela Merkel in Berlin July 16, 2007. REUTERS/Tobias Schwarz

“We think the EU has got the judgement wrong,” Treasury Chief Secretary Liam Byrne told BBC radio.

“We think the plan that they’ve set out would require us to take something like 20 billion pounds more out of the economy by 2014-15 and we think that would do irreparable damage to public services or to taxpayers.”

The opposition Conservatives said the report supported their calls for quicker action on the deficit and promised more information after next week’s budget. The budget is one of the last big political set pieces before an election expected in May.

“There will be more details on spending after the budget and before the election,” a Conservative Party source told Reuters.

Labour’s Byrne was responding to a draft from the EU executive obtained by Reuters which said Britain’s fiscal programme failed to guarantee it would meet an EU deadline of 2014-15 for cutting the deficit to below the bloc’s cap of 3 percent of economic output.

Cutting the record budget deficit will be a crucial issue in the upcoming election, with Labour trailing the Conservatives in opinion polls.

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The 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. That means it will fail to meet a deadline given by EU finance ministers late last year.

Labour, in power since 1997, wants to put off cuts until a fragile economic recovery is assured.

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The Conservatives, whose lead in the polls has slipped in recent weeks, seized on the EU report. They have promised to take quicker action on tackling the deficit than either the Labour government or the Liberal Democrat party and have warned that Britain’s triple-A credit rating was under threat because of government profligacy.

“What has to be done now is to get this debt rapidly under control and get the bulk of the structural deficit, get rid of it during the next parliament and I also think one needs to start now,” said Conservative business spokesman Ken Clarke.

Some analysts have warmed to the Conservatives’ approach but others have criticised the party for talking tough but not producing the evidence to back it up.

“The real lack of detail is on the part of the government because they have refused to publish a spending review,” the Conservative source said. “They don’t want to own up to the scale of the problem they have created.”

Byrne said spending cuts as envisaged by the EU would be a disaster for public services.

“You would have to take 20 billion pounds of public spending out by 2014-15, that’s about half the education budget. We think that halving the deficit over four years is the right approach,” he said.

“We think that is not reckless. It’s not painless either.”

Additional reporting by Michael Holden and Kylie MacLellan; Editing by Stephen Nisbet

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