The European Commission has put the UK under orders to cut its budget deficit - even though it is outside the eurozone.
The EU executive said Britain had breached rules in 2004-5 for the second year in succession by running a deficit of 3.3 per cent and expected a shortfall of 3.1 per cent of GDP this year.
Economic and Monetary Affairs Commissioner Joaquin Almunia said: "Having examined the UK's budgetary situation, the Commission considers that the deficit is likely to remain above the three per cent reference value in 2005/06 and 2006/07 in spite of the recently announced fiscal measures.
"The Commission is asking the council to endorse this opinion and to recommend that the deficit be brought below three per cent by the forthcoming 2006/07 financial year."
But because the UK is not part of the European single currency agreement, the EU has no power to impose a penalty, as it has with euro-zone nations. The Treasury signalled that Gordon Brown had no intention of changing course to comply.
Mr Almunia, however, said he was sure Britain would comply if the 25 EU finance ministers endorsed his view when they meet on January 24, adding that the adjustment required was "not so huge" and economic prospects were improving.
A defiant Treasury spokesman said: "Our projections are fully consistent with our prudent interpretation of the EU growth pact and we continue to meet our fiscal rules over the cycle and our public finances are sustainable."
Tories, on the other hand, said Brussels had exposed Mr Brown's profligacy, accusing him of concealing a higher deficit due to PFI and Network Rail debts.
"The chancellor spins himself as a prudent man but even the European Commission is showing him up as a reckless spender," said Timothy Kirkhope, Conservative leader in the European Parliament.
Economists in London have long warned that Mr Brown has allowed Britain's public debt to climb and will have to cut public spending or raise taxes before the next election.
Britain is obliged to try to avoid deficits that exceed the three per cent of GDP limit under the EU's stability and growth pact.