Brown clashes with three EU states after censure vote on Britain's budget strategy

Gordon Brown faced down an unprecedented vote to censure his handling of the British economy yesterday as his budget plans were challenged seriously by other EU states for the first time.

In a co-ordinated attack, Spain, Denmark and Belgium voted at a meeting of EU finance ministers in Brussels to declare Britain's projected deficit "significantly above" target. It was also in breach of its EU obligations, they said.

But Mr Brown won the backing of larger member states including France and Germany, which have fallen foul of the strict rules laid down for membership of the euro.

Yesterday's events will embarrass the Chancellor who argues that Britain's low-cost, deregulated economy – with its higher than average growth – should be the model for other EU nations.

They may also stoke the debate about the extent to which the UK might have to adapt policy if it were to join the euro. Ironically the UK economy was praised by the European Commission, which has often been criticised by Mr Brown.

The clash revolved around the UK's "convergence report" which maps out the Government's plans to meet the target laid down for membership of the euro – even though Britain is not a member.

At the heart of yesterday's vote was a stipulation that member states must get their budgets close to balance in the medium term. Members of the euro can be fined if their deficits exceed 3 per cent of gross domestic product.

The Commission is arguing that nations such as the UK, which has very low debt, should be allowed the flexibility to increase deficits to invest in public services.

But a group of nations which are close to balancing their budgets object to that, arguing that such moves will water down the euro's rulebook, the so-called stability and growth pact. Critics of the UK were not limited to the three that voted against the Government. Efforts to make the report more critical of Britain were initially spearheaded by the Netherlands, and Sauli Niinisto, the Finnish Finance Minister, said before the meeting that Britain's budget plans were "going a bit in the wrong direction". Although Britain had not adopted the euro, he said, it was still required to balance its budget over the medium term.

Mr Brown gave a robust defence of his policy, pointing out that the UK could afford his spending plans because low public debt – the lowest in the EU at 38.1 per cent – gave the flexibility to make long-term investment in public services.

"It is not profligate. We have worked hard to ensure we have low and sustainable levels of debt" he said.

The final judgement of the meeting said the "optimistic" growth forecasts could take the deficit above the 3 per cent ceiling, although it would return to about 1.5 per cent in later years.

¿ Tony Blair said yesterday that a decision on Britain's entry to the euro was not affected by a Treasury report criticising the slow pace of economic reform in Europe.

He dismissed claims that the report in effect ruled out euro membership, but said it was "important" to secure progress on reform at an EU summit next month.