Recommendation for a COUNCIL RECOMMENDATION on the 2016 national reform programme of the United Kingdom and delivering a Council opinion on the 2016 convergence programme of the United Kingdom
Date: 2016-05-18
Institutions: European Commission, Secretariat-General
Subjects: United Kingdom, apprenticeship, budget deficit, child care, economic growth, economic policy, employment policy, investment, property market, stability programme

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   EUROPEAN COMMISSION  Brussels, 18.5.2016  COM(2016) 348 final   Recommendation for a COUNCIL RECOMMENDATION on the 2016 national reform programme of the United Kingdom  and delivering a Council opinion on the 2016 convergence programme of the United Kingdom  
 
 
Recommendation for a 

COUNCIL RECOMMENDATION 

on the 2016 national reform programme of the United Kingdom 

and delivering a Council opinion on the 2016 convergence programme of the United 
Kingdom 

THE COUNCIL OF THE EUROPEAN UNION, 

Having  regard  to  the  Treaty  on  the  Functioning  of  the  European  Union,  and  in  particular 
Articles 121(2) and 148(4) thereof, 

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 
policies1, and in particular Article 9(2) thereof, 
Having regard to the recommendation of the European Commission2, 
Having regard to the resolutions of the European Parliament3, 

Having regard to the conclusions of the European Council, 

Having regard to the opinion of the Employment Committee, 

Having regard to the opinion of the Economic and Financial Committee, 

Having regard to the opinion of the Social Protection Committee, 

Having regard to the opinion of the Economic Policy Committee, 

Whereas: 

(1) 

(2) 

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2 
3 
4 
5 
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On  26  November  2015,  the  Commission  adopted  the  Annual  Growth  Survey4, 
marking  the  start  of  the  2016  European  Semester  of  economic  policy  coordination. 
The priorities of the Annual Growth Survey were endorsed by the European Council 
on 17-18 March 2016. On 26 November 2015, on the basis of Regulation (EU) No 
1176/2011,  the  Commission  adopted  the  Alert  Mechanism  Report5,  in  which  it 
identified  the  United  Kingdom  as  one  of  the  Member  States  for  which  an  in-depth 
review would be carried out.  
The  2016  country  report  for  the  United  Kingdom6  was  published  on  26  February 
2016.  It  assessed  the  United  Kingdom's  progress  in  addressing  the  country-specific 
recommendations adopted by the Council on 14 July 2015 and the United Kingdom's 

OJ L 209, 2.8.1997, p. 1. 
COM(2016) 348 final. 
P8_TA(2016)0058, P8_TA(2016)0059, and P8_TA(2016)0060. 
COM(2015) 690 final. 
COM(2015) 691 final. 
SWD(2016) 96 final. 

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progress  towards  its  national  Europe  2020  targets.  It  also  included  the  in-depth 
review  under  Article  5  of  Regulation  (EU)  No  1176/2011.  On  8  March  2016,  the 
Commission  presented    the  results  of  the  in-depth  review.7  The  Commission’s 
analysis  leads  it  to  conclude  that  the  United  Kingdom  is  not  experiencing 
macroeconomic imbalances. High household sector debt, elevated house price levels 
and  the  large  current  account  deficits  may  constitute  vulnerabilities.  At  the  same 
time,  household  balance  sheets  are  strong  in  aggregate  and  the  resilience  of  the 
banking  sector  continues  to  improve.  In  the  short  term,  the  robustness  of  the 
household sector and wider economy to handle risks such as an interest rate shock or 
a  shock  to  employment  seems  to  have  increased.  However,  several  government 
initiatives  have  yet  to  exert  a  material  impact  on  the  imbalance  between  housing 
supply  and  demand.  Risks  associated  with  the  large  current  account  deficit  are 
mitigated  by  a  favourable  institutional  framework  and  low  foreign  currency 
liabilities.  The  rise  in  the  deficit  has  been  driven  by  the  upward  movement  in  the 
deficit on primary income and it is expected to decline as adverse cyclical conditions 
unwind.  

On  24  March  2016,  the  United  Kingdom  submitted  its  2016  national  reform 
programme  and  its  2016  convergence  programme.  To  take  account  of  their 
interlinkages, the two programmes have been assessed at the same time. 

recommendations  have  been  addressed 

Relevant  country-specific 
the 
programming  of  the  European  Structural  and  Investment  Funds  for  the  2014-2020 
period.  As  foreseen  in  Article  23  of  Regulation  (EU)  No  1303/2013,  where  it  is 
necessary  to  support  the  implementation  of  relevant  Council  recommendations,  the 
Commission may request a Member State to review and propose amendments to its 
Partnership  Agreement  and  relevant  programmes.  The  Commission  has  provided 
further  details  on  how  it  would  make  use  of  this  provision  in  guidelines  on  the 
application  of  the  measures  linking  effectiveness  of  the  European  Structural  and 
Investment Funds to sound economic governance.8 

in 

The United Kingdom is currently in the corrective arm of the Stability and Growth 
Pact. Provided that a durable correction of the excessive deficit is achieved in 2016-
17,  the  United  Kingdom  will  be  subject  to  the  preventive  arm  and  the  transitional 
debt rule as from 2017-18. In its 2015-16 convergence programme, the government 
expects the headline  deficit to  be below 3%  of GDP in  2016-17 and plans  for it to 
decline  further  to  2.0%  of  GDP  by  2017-18.  The  recalculated9  structural  deficit 
points to a structural improvement of 0.6 pp of GDP in 2015-16; 0.9 pp of GDP in 
2016-17,  and  0.7  pp  of  GDP  in  2017-18.  The  convergence  programme  does  not 
include  a  medium-term  budgetary  objective.  According  to  the  convergence 
programme, the government debt-to-GDP ratio is expected to increase from 88.0% in 
2015-16 to a peak of 88.3% of GDP in 2016-17, before declining to 87.1% in 2017-
18.  The  macroeconomic  scenario  underpinning  the  budgetary  projections  is 
plausible. Measures to support the planned deficit targets in 2016-17 and 2017-18 are 
sufficiently  specified.  However,  the  impact  of  some  measures  in  2017-18,  whose 
budgetary impact is estimated at around 0.2% of GDP, is more uncertain. Based on 
the Commission 2016 spring forecast, in 2015-16 the United Kingdom is expected to 

(3) 

(4) 

(5) 

7 
8 
9 

COM(2016) 95 final. 
COM(2014) 494 final. 
The structural balance as recalculated by the Commission based on the information in the convergence 
programme, following the commonly agreed methodology. 

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have  achieved  the  recommended  headline  deficit  of  4.1%  of  GDP  and  to  have 
delivered the recommended fiscal effort. The United Kingdom is forecast to correct 
its excessive deficit by the 2016-17 deadline as recommended by the Council, though 
missing  the  recommended  headline  deficit  target  of  2.7%  of  GDP.  A  marginally 
lower  than  recommended  fiscal  effort  is  projected  to  be  delivered  on  a  cumulative 
basis over the excessive deficit prodecure period. In 2017-18, the United Kingdom is 
expected  to  comply  with  the  recommended  adjustment  towards  the  minimum 
medium-term budgetary objective under unchanged policies. The United Kingdom is 
also  forecast  to  comply  with  the  transitional  debt  rule  in  2017-18.  Based  on  its 
assessment of the convergence programme, and taking into account the Commission 
2016  spring  forecast,  the  Council  is  of  the  opinion  that  the  United  Kingdom  is 
expected to broadly comply with the provisions of the Stability and Growth Pact. 

Productivity  in  the  United  Kingdom  has  stagnated  since  2008.  This  may  be 
attributable  to  various  factors  such  as  low  capital  investment,  skills  shortages,  skill 
mismatches and a shift in the composition of the economy towards business sectors 
with lower productivity. The challenges related to insufficient housing, especially in 
geographical  areas  of  high  economic  growth  also  have  to  be  considered  in  this 
context.  The  government's  July  2015  policy  document,  'Fixing  the  foundations- 
creating  a  prosperous  nation'  lays  out  a  wide-ranging  response.  In  view  of  certain 
barriers  to  investment  that  still  exist  and  the  low  level  of  public  and  private 
investment  in  the  United  Kingdom,  the  government's  policy  actions  to  boost  skill 
levels,  innovation  and  infrastructure  investment  are  timely  although  effective 
implementation  will  be  important.  One  of  the  main  investment  challenges  is  to 
deliver adequate network infrastructure. The National Infrastructure Plan, which was 
updated  in  March  2016,  sets  out  details  of  the  progress  of  infrastructure  projects 
within  a  coherent  and  consistent  framework.  The  plan  is  reliant  on  securing  an 
increase in private finance for much of the investment. Delivery and monitoring are 
crucial  and  transparency  and  accountability  are  key.  Despite  the  government's 
various initiatives, housing demand continues to outstrip supply and this is reflected 
in high and rising house prices. The shortage of housing is most acute in the rapidly-
growing  regions  of  London  and  the  South-East.  The  use  of  land  is  guided  by 
principles  set  out  in  the  national  planning  policy  framework  and  effective 
implementation  of  the  reformed  planning  system  could  facilitate  increased  housing 
construction. 

The  United  Kingdom's  labour  market  remains  dynamic.  In  2015,  the  employment 
rate  (age  group  20-64)  reached  76.9%  while  the  unemployment  rate  continued  its 
downward trend, reaching 5.3%. Youth unemployment and rates of young people not 
in employment, education or training have also further decreased. Nonetheless, there 
remains scope for improvement in the prospects for inactive, underemployed and low 
skilled  workers.  Better  labour  market  progression  prospects  and  clearer  routes  to 
upskilling would assist those who find themselves confined to low-wage and/or low-
hours  of  work.  It  would  also  address  the  skills  shortages  that  are  apparent  in  some 
parts of the economy, such as construction. Successful deployment of the resources 
arising  from  the  apprenticeship  levy  will  require  careful  attention.  Proposals  to 
improve  supply  in  childcare  will  require  timely  implementation  as  the  availability 
and affordability of childcare remain a challenge. 

(6) 

(7) 

(8) 

In  the  context  of  the  European  Semester,  the  Commission  has  carried  out  a 
comprehensive analysis of the United Kingdom's economic policy and published it in 
the  2016  country  report.  It  has  also  assessed  the  convergence  programme  and  the 

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national  reform  programme  and  the  follow-up  given  to  the  recommendations 
addressed  to  the  United  Kingdom  in  previous  years.  It  has  taken  into  account  not 
only  their  relevance  for  sustainable  fiscal  and  socio-economic  policy  in  the  United 
Kingdom  but  also  their  compliance  with  EU  rules  and  guidance,  given  the  need  to 
strengthen  the  overall  economic  governance  of  the  European  Union  by  providing 
EU-level  input  into  future  national  decisions.  The  recommendations  under  the 
European Semester are reflected in recommendations 1 to 3 below. 

(9) 

In  the  light  of  this  assessment,  the  Council  has  examined  the  convergence 
programme, and its opinion10 is reflected in particular in recommendation 1 below. 

HEREBY RECOMMENDS that the United Kingdom take action in 2016 and 2017 to: 

1. 

2. 

3. 

Endeavour  to  correct  the  excessive  deficit  in  a  durable  manner  by  2016-17. 
Following the correction of the excessive deficit, achieve a fiscal adjustment of 0.6% 
of GDP in 2017-18 towards the minimum medium-term budgetary objective. 

Address  shortfalls in network  infrastructure investment, including  by delivering the 
priorities  of  the  National  Infrastructure  Plan.  Take  further  steps  to  boost  housing 
supply,  including  by  implementing  the  reforms  of  the  national  planning  policy 
framework. 

Address  skills  mismatches  and  provide  for  skills  progression,  including  by 
strengthening  the  quality  of  apprenticeships.  Further  improve  the  availability  of 
affordable, high-quality, full-time childcare. 

Done at Brussels, 

For the Council 
The President 

10 

Under Article 9(2) of Council Regulation (EC) No 1466/97. 

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