# Council Decision (EU) 2015/1098Show full title

Council Decision (EU) 2015/1098 of 19 June 2015 establishing that no effective action has been taken by the United Kingdom            in response to the Council Recommendation of 2 December 2009         

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# Council Decision (EU) 2015/1098                     

# of 19 June 2015

# establishing that no effective action has been taken by the United Kingdom in response to the Council Recommendation of 2                        December 2009                     

THE COUNCIL OF THE EUROPEAN UNION,

Having regard to the Treaty on the Functioning of the European Union, and in particular Article 126(8) thereof,

Having regard to the recommendation from the European Commission,

Whereas:

(1)According to Article 126 of the Treaty on the Functioning of the European Union (TFEU) Member States are to avoid excessive                              government deficits.

(2)Pursuant to paragraph 4 of the Protocol (No 15) on certain provisions relating to the United Kingdom of Great Britain and                              Northern Ireland annexed to the Treaty on European Union and to the TFEU, the obligation in Article 126(1) of the TFEU to                              avoid excessive general government deficits does not apply to the UK unless it adopts the euro. Paragraph 5 of that Protocol                              provides that the UK is to endeavour to avoid an excessive government deficit.

(3)The Stability and Growth Pact is based on the objective of sound government finances as a means of strengthening the conditions                              for price stability and for strong sustainable growth conducive to employment creation. The Stability and Growth Pact includes                              Council Regulation (EC) No 1467/97(1), which was adopted in order to further the prompt correction of excessive general government deficits.

(4)On 8 July 2008 the Council decided, in accordance with Article 104(6) of the Treaty establishing the European Community (TEC),                              that an excessive deficit existed in the UK(2) and issued a recommendation to the country to endeavour to correct the excessive deficit by financial year 2009-2010 at the                              latest, in accordance with Article 104(7) of the TEC and Article 3 of Regulation (EC) No 1467/97. The Council set a deadline                              of 8 January 2009 for effective action to be taken(3).

(5)In accordance with Article 104(8) of the TEC, the Council decided, on 27 April 2009, that the UK had not taken effective action                              in response to the Council recommendation of 8 July 2008(4).

(6)Recognising that the United Kingdom's budgetary position in 2009-2010 resulted from the implementation of measures amounting                              to around 1,5 % of GDP, which were an appropriate response to the European Economic Recovery Plan, and the free play of automatic                              stabilisers, on 2 December 2009, the Council issued a revised recommendation under Article 126(7) of the TFEU recommending                              that the UK put an end to the excessive deficit situation by 2014-2015. Specifically, in order to bring the general government                              deficit below 3 % of GDP in a credible and sustainable manner, the UK was recommended to: (a) implement the fiscal measures                              in 2009-2010 as planned in the 2009 Budget, avoiding further measures contributing to the deterioration of public finances,                              and start consolidation in 2010-2011 in order to bring the deficit below the reference value by 2014-2015; (b) ensure an average                              annual fiscal effort of 1,75 % of GDP between 2010-2011 and 2014-2015, which should also contribute to bringing the government                              gross debt ratio back on a declining path that approaches the reference value at a satisfactory pace by restoring an adequate                              level of the primary surplus; (c) further specify the additional measures that are necessary to achieve the correction of                              the excessive deficit by 2014-2015, cyclical conditions permitting, and accelerate the reduction of the deficit if economic                              or budgetary conditions turn out better than currently expected. In its recommendation of 2 December 2009 the Council established                              a deadline of 2 June 2010 for effective action to be taken in line with the Article 3(4) of Regulation (EC) No 1467/97.

(7)On 6 July 2010, the Commission concluded that based on the Commission's 2010 spring forecast, the UK had taken effective action                              in compliance with the Council recommendation of 2 December 2009 and considered that no additional step in the excessive deficit                              procedure was therefore necessary at that point in time.

(8)A new assessment of the action taken by the UK to correct the excessive deficit by 2014-2015 in response to the Council Recommendation                              under Article 126(7) of the TFEU of 2 December 2009, leads to the following conclusions:-  The UK experienced a large fall in real GDP growth as a result of the global economic and financial crisis in 2008-2009 that                                    also affected public finances. The general government deficit jumped to 10,9 % of GDP in 2009-2010. This was largely brought                                    about by a drop in revenues and higher social security expenditure due to the contraction in economic activity, and stimulus                                    measures announced by the government for 2009-2010. The UK implemented a consolidation plan which focussed mainly on spending                                    cuts and put the deficit on a downward trajectory.                                  
-  In 2010-2011, the general government deficit was 9,1 % of GDP. The measures implemented by the UK that year stem from the                                    2009 pre-budget report announced in December, the March budget and a second emergency budget in June following the general                                    election. A Spending Review was also published in October 2010. Overall, measures were generally back-loaded and focussed                                    on spending cuts over taxation increases. Over the period to 2014-2015, the March budgets, Autumn Statements and Spending                                    Round did not change the original consolidation plans considerably. The programme, that was implemented over five years, focussed                                    on considerable cuts to departmental spending, along with pay freezes and cuts to welfare spending. Overall, the main taxation                                    measures announced comprised an increase in the standard VAT rate, the introduction of and increases in the bank levy, higher                                    social insurance contributions, cuts to the corporate tax rate, increases in the personal income tax allowance, duty rate                                    cuts and tax avoidance measures. From 2012-2013, the deficit figures also benefit from the dividend transfers from the Bank                                    of England via the Asset Purchase Facility. Resulting from the implementation of the consolidation plans, the nominal deficit                                    fell each year to 7,7 % of GDP in 2011-2012, to 7,6 % of GDP in 2012-2013, to 5,9 % of GDP in 2013-2014 and to 5,2 % of GDP                                    in 2014-2015. The structural deficit was 7,0 % of GDP in 2010-2011, 5,9 % of GDP in both 2011-2012 and 2012-2013, 4,6 % of                                    GDP in 2013-2014 and 4,7 % of GDP in 2014-2015.                                  
-  The average structural effort amounted to 0,7 % of GDP between 2010-2011 and 2014-2015. When adjusted for the impact of revisions                                    in potential output growth between the current forecast and that underlying the Council recommendation of 2 December 2009,                                    as well as for the impact of revenue developments as compared to standard elasticities to GDP growth, the average annual adjusted                                    structural effort over the period is estimated at 1,1 % of GDP, below the 1   % annual average fiscal effort recommended by the Council.                                  
-  The estimated cumulative size of the discretionary consolidation measures set out between the Pre-budget Report 2009 and the                                    Autumn Statement 2014 amounts to approximately 3,5 % of GDP between 2010-2011 and 2014-2015.                                  
-  General government gross debt continued to increase over the EDP period reaching 88,4 % of GDP in 2014-2015. This worsening                                    of the debt ratio was mainly driven by the headline deficit, but also by financial sector interventions.                                  

(9)These factors lead to the conclusion that, despite the fiscal consolidation programme set out and being implemented, the UK                              did not put an end to its excessive deficit by 2014-2015. Furthermore, the UK did not adhere to the average fiscal effort                              of 1   % which was recommended by the Council on 2 December 2009. Overall, the response by the UK to the Council recommendation                              under Article 126(7) of the TFEU of 2 December 2009 has not been sufficient,

HAS ADOPTED THIS DECISION:

# Article 1U.K.

The United Kingdom has not taken effective action in response to the Council recommendation of 2 December 2009.

# Article 2U.K.

This Decision is addressed to the United Kingdom of Great Britain and Northern Ireland.

Done at Luxembourg, 19 June 2015.

*For the Council*                            

*The President*                            

J. Reirs                            

1

Council Regulation (EC) No 1467/97 of 7 July 1997 on speeding up and clarifying the implementation of the excessive deficit                              procedure (OJ L 209, 2.8.1997, p. 6).                           

2

Council Decision 2008/713/EC of 8 July 2008 on the existence of an excessive deficit in the United Kingdom (OJ L 238, 5.9.2008, p. 5).                           

3

All documents related to the excessive deficit procedure of the United Kingdom can be found at: http://ec.europa.eu/economy_finance/economic_governance/sgp/deficit/countries/uk_en.htm

4

Council Decision 2009/409/EC of 27 April 2009 establishing, in accordance with Article 104(8) of the Treaty, whether effective                              action has been taken by the United Kingdom in response to the Council Recommendation of 8 July 2008 pursuant to Article 104(7)                              (OJ L 132, 29.5.2009, p. 11).