Council Opinion of 18 February 2003 on the updated convergence programme of the United Kingdom 2001/02 to 2007/08
Date: 2003-02-18
Institutions: Council of the European Union
Subjects: United Kingdom, economic policy, gross domestic product, public finance, stability programme

5.3.2003

EN

Official Journal of the European Union

C 51/7

COUNCIL OPINION

of 18 February 2003

on the updated convergence programme of the United Kingdom 2001/02 to 2007/08

(2003/C 51/05)

THE COUNCIL OF THE EUROPEAN UNION,

Having regard to the Treaty establishing the European
Community,

Having regard to Council Regulation (EC) No 1466/97 of 7
July 1997 on the strengthening of the surveillance of budgetary
positions and the surveillance and coordination of economic
policies (1), and in particular Article 9(3) thereof,

Having regard to the recommendation of the Commission,

After consulting the Economic and Financial Committee,

2,75 % is consistent with Commission services calculations and
higher than the 2,5 % used in the programme that underpins
finances. The general
the government
the projections of
to
government
in the programme,
finances are projected,
show deficits of 1,8 % of GDP in the current
fiscal year,
2002/03, and 2,2 % in 2003/04. In cyclically adjusted terms,
to 1,1 % and 1,4 % of GDP,
these would be equivalent
respectively. The deficit would be around 1,6 % of GDP in
the final years of the programme — 2005/06 to 2007/08 —
both in nominal and cyclically adjusted terms. Much of the rise
in the deficit over the programme period results from the
planned reversal of the decline in public investment relative
to GDP. This reversal is in itself in line with the 2002 Broad
Economic Policy Guidelines. The Council notes, with approval,
that the United Kingdom gross debt to GDP ratio is projected
to remain relatively low at around 39 % in 2003/04 and
subsequently.

HAS DELIVERED THIS OPINION:

On 18 February 2003 the Council examined the United
Kingdom's updated convergence programme, which covers
the period 2001/02 to 2007/08. This update provides
detailed information,
including the analysis of the long-term
sustainability of public finances, which is broadly in line with
the code of conduct. The economic policies as reflected in the
planned measures
in the convergence programme update
comply in part with the 2002 Broad Economic Policy
Guidelines.

by

stability

supported

the programme
The Council considers it appropriate that
stresses, as did the previous programme, the importance of
securing macroeconomic
sound
monetary and fiscal policies and continued structural reform.
The Council notes with satisfaction that these policies have
delivered low and stable inflation in recent years. The
convergence criteria on inflation and long term interest rates
are fulfilled with some margin and the programme projects
that the inflation target will continue to be achieved over the
programme period. The Council recommends that the United
Kingdom continue with the stability-oriented policies with a
view to securing exchange rate stability which,
in turn,
should help reinforce a stable economic environment.

The Council notes that the actual projected deficits in 2002/03
and 2003/04 are now substantially higher than those foreseen
in the previous programme update by 0,7 and 0,9 percentage
points of GDP respectively. The Council acknowledges that this
rise in the deficit in 2002/03 and 2003/04 results mainly from
cyclical factors.

The Council notes that the relatively high projected deficit of
2,2 % of GDP in 2003/04 is based on GDP growth
assumptions of 2,5 % in 2003 and 3 % in 2004 which now
appear
in light of global uncertainty.
Therefore, such budgetary plans could lead to a deficit that
could potentially breach the 3 % of GDP reference value and,
consequently, they would not be in line with the requirements
of the Stability and Growth Pact.

to be optimistic

The Council notes that the deficits projected for the later years
of the programme are at around 1,5 % of GDP, both actual and
cyclically adjusted. Consequently, the Council recommends that
the United Kingdom authorities
a
is in line with the
‘medium-term’ budgetary position that
close to balance requirement of the Stability and Growth Pact.

aim for

should

The programme is based on public finance projections that
assume GDP growth rising from 1,6 % in 2002 to 2,5 % in
2003, and 3 % in 2004 and 2,75 % in 2005. This is in line
with the Commission Autumn 2002 forecast. The Council
considers that the macroeconomic forecasts appear now to
be optimistic in the short term and that there are downside
risks to growth. However, the trend growth assumption of

(1) OJ L 209, 2.8.1997.

The projections show a low and stable level of the general
government gross debt-to-GDP ratio from 2003/04. The
Council notes that on the basis of current policies, ageing
populations are projected to have a limited impact on public
spending on pensions as a share of GDP. While recognising
that
the GDP
reference value,
following the
‘close to balance or in surplus’ requirement should help to
ensure the sustainability of the public finances in the longer
term.

levels are well below the 60 % of

the Council considers

the debt

that

C 51/8

EN

Official Journal of the European Union

5.3.2003

The Council welcomes the attention paid to the sustainability
of public finances in the convergence programmes and notes
with interest the variety of indicators used to examine long-run
budgetary challenges and issues related to intergenerational
equity. The Council considers that on current policies and
the assumptions in the programme, the United Kingdom is
well placed to meet
the budgetary costs associated with
ageing populations. The Council notes, however, that much
of the financial sustainability of the pension system depends
on the performance of private pension providers. If private
provision produces
than the anticipated
significantly less
coverage or level of pensions, future governments may face
it
increased claims of means-tested benefits. Therefore,

considers that a budgetary position of a limited deficit in the
medium term would help avoid any risk of emerging budget
imbalances in the context of ageing populations and give
greater assurance to the programme view that
‘the public
finances, based on current policies, are sustainable in the long-
term’.

The Council welcomes the measures of economic reform
which, among other objectives, are intended to achieve a
higher sustainable rate of productivity growth. In view of the
relatively low level of productivity in the United Kingdom,
compared to its competitors,
the Council welcomes these
measures.