COMMUNICATION FROM THE COMMISSION Assessment of action taken by THE UNITED KINGDOM in response to the Council Recommendation of 19 June 2015 with a view to bringing an end to the situation of excessive government deficit
Date: 2015-11-16
Institutions: Directorate-General for Economic and Financial Affairs, European Commission
Subjects: United Kingdom, budget deficit, budget estimate, budgetary equilibrium, gross domestic product, public debt, stability pact

EUROPEAN 
COMMISSION 

Brussels, 16.11.2015  
COM(2015) 804 final 

COMMUNICATION FROM THE COMMISSION 

Assessment of action taken by THE UNITED KINGDOM 

in response to the Council Recommendation of 19 June 2015 with a view to bringing an 
end to the situation of excessive government deficit 

{SWD(2015) 615 final} 

EN 

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COMMUNICATION FROM THE COMMISSION 

Assessment of action taken by THE UNITED KINGDOM 

in response to the Council Recommendation of 19 June 2015 with a view to bringing an 
end to the situation of excessive government deficit 

1. 

INTRODUCTION 

On 19 June 2015, the Council issued a recommendation to the United Kingdom under Article 
126(7) of the Treaty, with a view to bringing an end to the excessive deficit situation by 2016-
17.  The  United  Kingdom  was  recommended  to  reach  a  headline  deficit  of  4.1%  of  GDP  in 
2015-16 and of 2.7% of GDP in 2016-17. Based on the macroeconomic forecast underlying 
the  Council  recommendation,  this  was  considered  consistent  with  an  improvement  in  the 
structural  balance  of  0.5%  of  GDP  in  2015-16  and  1.1%  in  2016-17.  The  Council  did  not 
require additional measures other than those already incorporated into all the UK government 
budgets and autumn statements up to and including the 2015 budget. 

In  accordance  with  Article  3(4a)  of  Council  Regulation  (EC)  No  1467/97,  the  Council 
established the deadline of 15 October 2015 for the UK to report in detail on action taken on 
its consolidation strategy. At the established deadline, the UK authorities submitted a report to 
the Commission highlighting the measures taken to achieve the targets set by the Council.  

The  Commission  has  examined  the  budgetary  strategy  of  the  UK,  based  on  the  information 
included  in  the  report  on  action  taken  and  the  economic  forecast  of  the  Office  for  Budget 
Responsibility  (OBR),  in  order  to  assess  whether  the  UK  has  complied  with  the  Council 
recommendation of 19 June 2015.  

2.  MEASURES  INCLUDED  IN  THE  REPORT  ON  ACTION  TAKEN  AND  UPDATED  BUDGETARY 

PROJECTIONS 

The  report  on  action  taken  confirms  the  budgetary  strategy  outlined  in  the  summer  budget 
which aims to correct the excessive deficit by 2016-17, the deadline set by the Council. The 
report does not include new measures since the budget of the new government, published on 
8 July.  However,  it  presents  an  overview  of  the  measures  that  conform  to  the  Council 
recommendation of 19 June 2015. Even though the recommendation did not require additional 
measures  to  bring  the  excessive  deficit  to  below  3%  of  GDP,  further  measures  were 
announced  in  the  budget  to  decrease  the  deficit  more  decisively  in  2016-17,  with 
GBP 5 billion (0.25% of GDP) of welfare savings and GBP 1 billion (0.05% of GDP) of net 
tax increases. 

The bulk of the improvement owing to the welfare savings in 2016-17 stem from a reduction 
in income thresholds in tax credits and work allowances in Universal Credit (GBP 2.9 billion) 
and  an  increase  in  the  tax  credits  taper  rate  to  48%  (GBP 1.5  billion).  The  main  new  tax 
measure  presented  in  the  budget  is  an  increase  in  the  insurance  premium  tax  from  6%  to 
9.5%. This takes effect from 1 November 2015 hence part of this is attributable to 2015-16 
and the remainder to 2016-17; GBP 0.5 billion and GBP 1 billion, respectively. 

In  light  of  the  information  provided  in  the  report  on  action  taken,  the  Commission  2015 
autumn  forecast  projects  the  general  government  deficit  to  fall  to  3.9% of  GDP  in  2015-16 
and to 2.4% of GDP in 2016-17, below the headline target deficits of 4.1% and 2.7% of GDP, 
respectively, set out in the Council recommendation.  

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Risks  to  the  budgetary  outlook  for  2015-16  and  2016-17,  as  projected  in  the  Commission 
2015 autumn forecast, appear balanced overall barring some implementation risks. While no 
major expenditure slippages are expected, economic performance is exposed to both positive 
and  negative  risks.  On  the  one  hand  stronger-than-expected  investment  could  imply  higher 
growth, while on the other hand a strong currrency could curtail exports more than expected.   

3.  ASSESSMENT OF ACTION TAKEN 

Based  on  the  information  submitted  in  the  report  on  action  taken,  the  Commission  autumn 
forecast projects a headline deficit of 3.9% of GDP in 2015-16 and 2.4% in 2016-17, below 
the  targets  set  by  the  Council.  The  adjustment  in  the  structural  balance  is  also  expected  to 
exceed the Council recommendation in both years. 

The  improvement  in  the  structural  balance  stemming  from  the  Commission  2015  autumn 
forecast amounts to 0.7% of GDP in 2015-16 and 1.3% in 2016-17, above the effort of 0.5% 
of GDP and 1.1% of GDP, respectively, recommended by the Council.  

As  the  headline  targets  and  the  adjustment  in  the  structural  balance  recommended  by  the 
Council are expected to be met in 2015-16 and 2016-17, a careful analysis of the fiscal effort 
is  not  necessary.  Indeed,  based  on  the  agreed  methodology,  combined  compliance  with  the 
headline deficit target and the underlying improvement in the structural balance is sufficient 
to  determine  that  effective  action  in  response  to  the  Council  recommendation  has  been 
delivered. 

Table 1. Comparison of budgetary projections 

% of GDP

Commission 2015 autumn forecast
Report on action taken
Baseline scenario (updated 2015 spring forecast)*
EDP target
Notes : 

Headline budget balance

2015-16
-3.9%
-4.0%
-4.1%
-4.1%

2016-17
-2.4%
-2.3%
-2.7%
-2.7%

Adjustment in the 
structural balance
2015-16
2016-17
1.3%
0.7%
1.5%
0.7%
1.1%
0.5%
1.1%
0.5%

*Scena ri o underpi nni ng the Counci l  Recommenda ti on of 19 June 2015

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4.  CONCLUSIONS 

The report on action taken submitted by the United Kingdom on 19 October 2015 confirms 
the plan of the UK government to correct the excessive deficit by 2016-17, the deadline set by 
the  Council,  and  provides  details  on  the  measures  underpinning  the  budgetary  strategy. 
Additional  measures  were  not  necessary  to  comply  with  the  Council  recommendation, 
however, extra measures were announced at the July budget, which are also included in the 
report on action taken.  

Overall,  based  on  the  information  available,  the  general  government  deficit  is  expected  to 
reach 3.9% of GDP in 2015-16 and 2.4% in 2016-17, in line with the targets recommended by 
the Council on 19 June 2015. The improvement in the structural balance, as estimated by the 
Commission based on the autumn forecast of 0.7% of GDP in 2015-16 and 1.3% of GDP in 
2016-17, also appears in line with the targets of 0.5% of GDP and 1.1% of GDP, respectively. 
According to the methodology for assessing effective action, as the UK is compliant with the 
headline  deficit  targets  and  the  underlying  improvements  in  the  structural  balance  as 
recommended over both 2015-16 and 2016-17, the Commission considers that the procedure 
be put in abeyance. 

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