2008/713/EC: Council Decision of 8 July 2008 on the existence of an excessive deficit in the United Kingdom
Date: 2008-07-08
Institutions: Council of the European Union
Subjects: United Kingdom, budget deficit, public debt, public finance, stability pact

5.9.2008

EN

Official Journal of the European Union

L 238/5

(Acts adopted under the EC Treaty/Euratom Treaty whose publication is not obligatory)

II

DECISIONS

COUNCIL

COUNCIL DECISION

of 8 July 2008

on the existence of an excessive deficit in the United Kingdom

(2008/713/EC)

THE COUNCIL OF THE EUROPEAN UNION,

strong sustainable growth conducive to employment
creation.

Having regard to the Treaty
Community, and in particular Article 104(6) thereof,

establishing the European

(4)

Having regard to the recommendation from the Commission,

Having regard to the observations made by the United
Kingdom,

Whereas:

The excessive deficit procedure under Article 104 of the
Treaty, as clarified by Council Regulation (EC) No
1467/97 of 7 July 1997 on speeding up and clarifying
the implementation of the excessive deficit procedure (1),
which is part of the Stability and Growth Pact, provides
for a decision on the existence of an excessive deficit. The
Protocol on the excessive deficit procedure annexed to
further provisions relating to the
the Treaty sets out
excessive deficit procedure.
the
implementation of
Council Regulation (EC) No 3605/93 (2)
lays down
detailed rules and definitions for the application of the
provision of the said Protocol.

(1)

(2)

(3)

Article 104 of the Treaty lays down an excessive deficit
procedure (EDP)
to ensure that Member States avoid
excessive government deficits or that they correct such
deficits when they occur.

Pursuant to point 5 of the Protocol on certain provisions
relating to the United Kingdom of Great Britain and
Northern Ireland, the obligation under Article 104(1) of
the Treaty to avoid excessive general government deficits
does not apply to the United Kingdom unless it moves to
the third stage of economic and monetary union. While
in the second stage of economic and monetary union,
the United Kingdom shall endeavour to avoid excessive
deficits, pursuant to Article 116(4) of the Treaty.

The Stability and Growth Pact is based on the objective
of
of
strengthening the conditions for price stability and for

government

a means

finances

sound

as

(5)

(6)

Article 104(5) of the Treaty requires the Commission to
address an opinion to the Council
if the Commission
considers that an excessive deficit exists in a Member
its
State or may occur. Having taken into account
report in accordance with Article 104(3) of the Treaty
and having regard to the opinion of the Economic and
Financial Committee in accordance with Article 104(4),
the Commission concluded that an excessive deficit exists
in the United Kingdom. The Commission therefore
addressed such an opinion to the Council in respect of
the United Kingdom on 2 July 2008.

the Treaty states that

Article 104(6) of
the Council
should consider any observations which the Member
State concerned may wish to make before deciding,
after an overall assessment, whether an excessive deficit
exists. In the case of the United Kingdom, this overall
assessment leads to the following conclusions.

(1) OJ L 209, 2.8.1997, p. 6.
(2) OJ L 332, 31.12.1993, p. 7.

L 238/6

EN

Official Journal of the European Union

5.9.2008

(7)

(8)

The United Kingdom undertook strong fiscal consoli­
dation efforts during the late 1990s. Thereafter,
the
government adopted a looser fiscal stance, mainly as a
result of an explicit policy objective to raise expenditure
on public services. As a result, the general government
balance moved from a surplus position in the late 1990s
to a deficit of 3,2 % of GDP in 2003/04 and 3,5 % in
2004/05. With the output gap remaining positive
throughout this period, this was equivalent to a dete­
the structural balance by 4¾ percentage
rioration of
points of GDP (1) between 1999/00 and 2004/05. On
21 September 2005 the Commission initiated an EDP
for
the UK with the adoption of a report under
Article 104(3) of the Treaty and on 24 January 2006
the Council decided that an excessive deficit existed in
the United Kingdom. The budgetary position improved in
2005/06 and 2006/07, with the headline deficit in the
latter year falling to 2,6 % of GDP. On 12 September
2007, taking into account the 2006/07 deficit outturn
and the spring 2007 forecast, the Commission adopted a
recommendation for a Council decision abrogating the
the UK. On 9 October 2007, ECOFIN
EDP against
decided to abrogate
the EDP in accordance with
Article 104(12) of the Treaty.

2008,

thus
this

the United Kingdom's

According to the EDP data notified by the UK authorities
in March
general
government deficit in 2008/09 was planned to reach
exceeding the 3 % of GDP
3,2 % of GDP,
reference
to that
identical
ratio was
value;
published in the United Kingdom's March 2008 budget,
which also presented budgetary plans showing a general
government deficit of 2,8 % of GDP in 2009/10. The
deficit figure in the latter year is lower than the corre­
sponding figure in the Commission services'
spring
forecast of 3,3 % of GDP, mainly due to differences in
expected GDP growth in 2009/10. Following the publi­
policy
a
cation
announcement on 13 May reducing personal
income
tax in 2008/09 will cost GBP 2,7 billion in 2008/09.
Adding this to the Commission services' spring 2008
forecast would imply a deficit of 3,5 % of GDP.
Although above the 3 % of GDP Treaty reference value,
the deficit planned for 2008/09, as notified in March
is close to it. The excess over the 3 % of GDP
2008,
in the sense of
reference value is not exceptional
it does not
Article 104(2) of the Treaty. In particular,
result from an unusual event outside the control of the
United Kingdom authorities, nor is it the result of a
severe economic downturn. The Commission services'

the March

budget,

2008

of

spring 2008 forecast projects UK growth to slow in
2008 and 2009 to annual rates below potential. Never­
theless, GDP growth is expected to reach 1,7 % in 2008
and 1,6 % in 2009. The excess over the 3 % of GDP
reference value is also considered not temporary, with
the Commission services forecasting, on the basis of
ratio in 2009/10 still
unchanged policies, a deficit
higher
the
Treaty requirement concerning the deficit criterion is
not fulfilled.

than 3 % (at 3,3 %). This

indicates

that

(9)

The general government debt ratio remains well below
the 60 % reference value (the March EDP data reported a
ratio of 43,0 % of GDP (2) in the 2007/08 financial year),
although projected to be on a rising trend up to
2009/10. In the Commission services' forecast, the debt
ratio is projected to reach around 47½ % of GDP in
2009/10.

(10) According to Article 2(4) of Regulation (EC) No
‘other relevant factors’ can only be taken into
1467/97,
account in the Council decision on the existence of an
excessive deficit in accordance with Article 104(6) if the
double condition — that the deficit remains close to the
reference value and that its excess over the reference
value
fully met. This double
condition is not met. Therefore, other relevant factors
are not taken into account in the steps leading to this
Decision,

temporary — is

is

HAS ADOPTED THIS DECISION:

Article 1

From an overall assessment it follows that an excessive deficit
exists in the United Kingdom.

Article 2

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

Done at Brussels, 8 July 2008.

For the Council
The President

C. LAGARDE

(1) Estimated by the Commission services, applying the common

(2) Using GDP adjusted for Financial Intermediation Services Indirectly

methodology on estimating output gaps.

Measured (FISIM).