Brown dismisses rebuke by Brussels

The European Commission criticised Gordon Brown's plans to boost spending on the National Health Service yesterday and called on the Government to do more to balance the nation's books.

The intervention by Brussels angered the Chancellor, who believes Commission officials are adopting a narrow interpretation of the European Union's fiscal rules. He believes the £40bn increase in health spending announced in last week's Budget is "right for the economy".

The row is a rerun of a similar battle last year, when Britain and Germany watered down criticism by the Commission of the budget deficits in both countries. Mr Brown will adopt similar tactics before the Commission's final judgement next year.

The Broad Economic Policy Guidelines, published yesterday, recognised the need for investment in infrastructure, but also restated the importance of Europe's goal of balancing budgets. The document urged the Government to bring finances "close to balance or in surplus" in 2003-4. The move is likely to fuel the debate on whether British membership of the euro would permit the investment needed for the modernisation of public services.

There is no suggestion by Brussels that the deficit would rise to near the ceiling imposed on all countries inside the euro of 3 per cent of gross domestic product. But Germany is already within a whisker of breaking these rules and yesterday Brussels revised its projection for the German deficit upwards, predicting that the Berlin government would come even closer to the limit.

A Treasury spokesman said Britain could afford to invest in public services because its level of debt was well below the EU average.

Mr Brown defended his plans when he appeared before the Commons Treasury Select Committee last night. He said he had "broken no promises" by increasing national insurance contributions. He angrily denied claims of a "black hole" in the Government's NHS spending plans, but refused to rule out further tax rises.

He demanded an apology from the Institute of Fiscal Studies, which suggested the final two years of the planned five-year increase in NHS spending was not covered by the 1 per cent increase in national insurance. He told MPs: "It's absolutely untrue."