GORDON BROWN’S budget plans came in for criticism on two fronts yesterday as the IMF joined Brussels in giving warning that weakening growth will send Britain’s finances billions deeper into the red than he has forecast.

In a double blow to the credibility of the Chancellor’s tax and spending plans, the International Monetary Fund threw its weight behind warnings from the European Commission that government borrowing will remain above 3 per cent of national income up to 2006-07.

As the Commission left Mr Brown chastened with a formal rebuke for breaching the EU’s 3 per cent of GDP cap on state borrowing in the last two financial years, it joined the IMF in predicting that the Chancellor will have to borrow billions more than he has forecast into 2007.

In a further embarrassment for Mr Brown, who flies to Washington today for the IMF’s annual meetings, its latest projections also showed that he is on course to breach his self-imposed rule limiting Britain’s total national debt to 40 per cent of GDP. The IMF expects the national debt to hit 40.2 per cent next year, and 43.9 per cent in 2010.

George Osborne, the Shadow Chancellor, said Mr Brown’s reputation had been further damaged.

“The IMF have lowered their growth forecast still further,” he said. “They have shown that Britain has a structural fiscal deficit that has grown faster than any other major economy since 2000. And they think the UK will have to tighten fiscal policy in the next year; the last thing we should be doing in a slowdown.”

But the IMF has been wrong before over its growth forecasts, something that Mr Brown has regularly enjoyed pointing out.

A Treasury spokesman said last night: “The budget plans show that the [public finance] rules will be met over this cycle and beyond, and all spending plans are fully costed and affordable.”

With the persistent consumer downturn meaning that growth is falling far short of the Chancellor’s expectations, the IMF expects borrowing to reach 3.2 per cent of GDP in 2005 and 3.4 per cent in 2006. That would leave borrowing in 2006-07 at £44 billion; £15 billion more than the 2.2 per cent of GDP that Mr Brown forecast in his Budget in March.

The IMF also renewed its warning to Mr Brown that he needs to raise taxes or curb spending if he is to meet his “golden rule” — that borrowing will pay only for investment — in the new economic cycle about to start.

Mr Brown is already under fire over claims that he fudged the rule in the present cycle by extending his view of its timing to flatter the figure. “Fiscal consolidation remains necessary to ensure that the golden rule is met,” the IMF said.

The warnings from Brussels and Washington over the worsening state of the nation’s finances come as much weaker growth than the Chancellor had hoped for hits the Treasury’s tax revenues.

In April Mr Brown said that the IMF would be proved wrong over a challenge to his projection of 3 to 3.5 per cent growth this year. “They have been wrong before about British growth . . . and I believe the figures are wrong again,” he said then.

But yesterday the IMF was vindicated, as still worse conditions led it to downgrade further its view of Britain’s prospects. It now expects growth of only 1.9 per cent this year.

In Brussels, the Commission pressed ahead with an expected move to begin formal disciplinary action against Britain for breaching the 3 per cent of GDP borrowing limit under the EU’s Stability and Growth Pact.

With Mr Brown having broken the limit in 2003-04 and 2004-05, Brussels believes that he will also do so in 2005-06 and 2006-07.

Joaquín Almunia, the EU’s Economic Affairs Commissioner, said that the problems were caused by lax control of Britain’s finances. “Fiscal loosening since 2000 has been continuous,” he said.

A committee of EU member states will now consider Britain’s budget position and make possible recommendations for remedial measures.

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