EN    EN EN 
 
EN    EN  COMMISSION OF THE E UROPEAN COMMUNITIES 
Brussels, 2.7.2008 
SEC(2008) 2189 final 
  
Recommendation for a 
COUNCIL RECOMMENDATION 
with a view to bringing an end to the situat ion of an excessive government deficit in the 
United Kingdom 
(presented by the Commission) 
 
EN 2   EN Recommendation for a 
COUNCIL RECOMMENDATION 
with a view to bringing an end to the situat ion of an excessive government deficit in the 
United Kingdom 
THE COUNCIL OF THE EUROPEAN UNION, 
Having regard to the Treaty establishing th e European Community, and in particular 
Article 104(7) thereof; 
Having regard to the recomme ndation from the Commission; 
Whereas: (1) Article 104 of the Treaty lays down an exces sive deficit procedur e (EDP) to ensure 
that Member States avoid excessive government deficits or that they correct such deficits when they occur. 
(2) Pursuant to point 5 of the Protocol on certain provisions relating to the United 
Kingdom of Great Britain and Northern Irela nd, the obligation in Ar ticle 104(1) of the 
Treaty to avoid excessive general government  deficits does not apply to the United 
Kingdom unless it moves to the third st age of economic and monetary union
1. While 
in the second stage of economic and mone tary union, the United Kingdom is required 
to endeavour to avoid excessive deficits, pursuant to Article 116(4) of the Treaty. 
(3) The Stability and Growth Pact is based on the objective of sound government finances 
as a means of strengthening the conditions fo r price stability and for strong sustainable 
growth conducive to employment creation.  
(4) The Council has decided on 8 July 2008, in accordance with Article 104(6) of the 
Treaty, that an excessive defic it exists in the United Kingdom.  
(5) In accordance with Article 104(7) of the Tr eaty and Article 3 of Council Regulation 
(EC) No 1467/97 on speeding up and clarifying  the implementation of the excessive 
deficit procedure2 (which is part of the Stability a nd Growth Pact), the Council is also 
required to make recommendations to the Member State concerned with a view to 
bringing the situation of excessive defic it to an end within a given period. The 
recommendation has to establish a deadline of  six months at the most for effective 
action to be taken by the Member States conc erned to correct the excessive deficit as 
well as a deadline for the correction of the excessive deficit, which should be 
                                                 
1 http://eur-lex.europa.eu/Lex UriServ/LexUriServ.do?uri= CELEX:12006E/PRO/25:EN:HTML  
2 OJ L 209, 2.8.1997, p. 6. Regulation as amended by Regulation (EC) No 1056/2005 (OJ L 174, 
7.7.2005, p. 5). 
 
EN 3   EN completed in the year (financial year in  the case of the United Kingdom) following its 
identification unless there are special ci rcumstances. In deciding whether special 
circumstances exist, “relevant factors” as cl arified in Article 2(3) of Regulation (EC) 
No 1467/97 should be given due consideration. Article 3(4)  of Regulation (EC) No 
1467/97 also specifies that in a recommenda tion to a Member St ate to correct an 
excessive deficit the Council should request  the achievement of a minimum annual 
improvement in the structural balance of 0.5% of GDP as a benchmark. 
(6) The Commission, in its spring 2008 forecast, pr ojected that on the basis of unchanged 
policies the general gov ernment deficit would rise from 2.9% of GDP in financial year 
2007/08 to 3.3% in 2008/09, and to remain at 3.3% in 2009/10. Real GDP growth, 
following an outturn of 3.0% in 2007, was projected to slow to 1.7% in 2008 and further to 1.6% in 2009. Against the background of the cyclical position moving from a positive output gap in 2007 to a negative one in 2008, the cyclically-adjusted deficit 
was projected to increase from 3.0% of  GDP in 2007/08 to 3.1% of GDP in 2008/09. 
Thereafter, the cyclically-adjusted deficit was projected to narro w to 2.9% of GDP in 
2009/10, reflecting the combined effects of discretionary measur es, including the 
higher taxes on alcohol and motor vehicles introduced in the 2008 Budget, and a small 
planned fall in the government expenditure ra tio. In part due to significant projected 
primary deficits, general government gross de bt was forecast to increase from 43.2% 
of GDP in the 2007/08 financial year to reach 47½% of GDP in 2009/10.  
(7) In the United Kingdom's 2008 Budget, the authorities presented budgetary plans 
showing a general government deficit of 3.2% of GDP in 2008/09, thereafter falling to 
2.8% in 2009/10. The deficit figure in the latt er year is lower th an the corresponding 
figure in the Commission services' spring 2008 forecast of 3.3% of GDP, mainly due 
to differences in expected GDP growth  in 2009/10. Subseque nt to the 2008 Budget 
and the Commission services’ spring fo recast, the Unite d Kingdom announced 
additional fiscal measures on 13 May 2008 rela ting to changes in personal income tax 
bands for the financial year 2008/09. The changes are expected to reduce personal 
income tax receipts in 2008/09 and will be financed by additional government 
borrowing. Other things being equal, this will  lead to an increase in the 2008/09 deficit 
ratio forecast by the Commission services by 0.2 percentage points
3, to around 3.5% of 
GDP, with a similar impact on the stru ctural deficit. Furthermore, the UK 
government's statement implies a risk of a de ficit overshoot also in  2009/10 relative to 
the deficit expected in the spring forecast.  
(8) In the case of the United Kingdom, the considerat ion of relevant factor s, as clarified in 
Article 2(3) of Regulation (EC) No 1467/97 and examined in the Commission’s report 
under Article 104(3), does not  suggest the presence of  special circumstances 
warranting a departure from the standard deadline for correcting the deficit. While 
GDP growth is expected to slow in 2008 and 2009 relative to pote ntial growth rates, 
leading to the emergence of a negative output gap, GDP growth is expected to remain 
positive throughout the spring forecast horizon at annual rates above 1.5% in 2008 and 2009. A deadline for correction of an excessive de ficit is to be set in accordance with 
the aforementioned Regulation, which envi sages that the correction should be 
                                                
 
3 In the UK government's income tax announcement  published on 13 May 2008, the cost of the income 
tax reduction was stated to amount to £2.7bn in 2008/09, which is estimated by the Commission to be 
equivalent to 0.2% of GDP. 
 
EN 4   EN completed in the year following its identifi cation. In the case of the United Kingdom 
the identification took place in 2008 on the basi s of a planned deficit in excess of the 
3% of GDP reference value in 2008/09. A ccordingly the headlin e deficit should be 
brought below the 3% of GDP reference at  the latest by financial year 2009/10. For 
this correction to be sustainable, based on the Commission servi ces' spring forecast, 
the UK authorities would have to achieve a structural impr ovement of at least 0.5% of 
GDP in 2009/10. 
(9) In general, in the view of  the Council, budgetary consolid ation measures should secure 
a lasting improvement in the general governme nt balance, while be ing geared towards 
enhancing the quality of the public finances and reinforcing the growth potential of the 
economy. A budgetary correction in the Unit ed Kingdom should be consistent with 
these objectives.  
HEREBY RECOMMENDS: – The United Kingdom authorities should put an e nd to the excessive deficit situation as 
soon as possible and by financia l year 2009/10 at the latest, in  accordance with Article 3(4) 
of Council Regulation (EC) No 1467/97, by bri nging the general government deficit below 
3% of GDP in a credible and sustainable manner.  
– To this end, on the basis of the Commission services' spring 2008 forecast, the authorities 
should ensure a structural improvement of at least 0.5% of GDP in 2009/10.  
The Council establishes the deadline of 8 Ja nuary 2009 for the United Kingdom authorities to 
take effective action to this end. 
In addition, the Council invites the United Ki ngdom authorities to ensure that, after the 
excessive deficit has been corre cted, budgetary consolidation is  sustained towards a medium-
term budgetary objective that (i) pr ovides an adequate safety margin with respect to the 3% of 
GDP deficit limit; (ii) maintains prudent debt ratios taking into account the economic and 
budgetary impact of ageing populations; and (iii) ta king (i) and (ii) into account, allows room 
for budgetary manoeuvre, in particular cons idering the needs for public investment.  
This recommendation is addressed to the Un ited Kingdom of Great Br itain and Northern 
Ireland 
Done at Brussels,  
 For the Council 
 The President