Recommendation for a COUNCIL RECOMMENDATION on the 2017 National Reform Programme of the United Kingdom and delivering a Council opinion on the 2017 Convergence Programme of the United Kingdom
Date: 2017-05-22
Institutions: European Commission, Secretariat-General
Subjects: United Kingdom, apprenticeship, budget deficit, economic policy, economic reform, housing policy, public finance, stability programme

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   EUROPEAN COMMISSION  Brussels, 22.5.2017  COM(2017) 527 final   Recommendation for a COUNCIL RECOMMENDATION on the 2017 National Reform Programme of the United Kingdom  and delivering a Council opinion on the 2017 Convergence Programme of the United Kingdom  
 
 
Recommendation for a 

COUNCIL RECOMMENDATION 

on the 2017 National Reform Programme of the United Kingdom 

and delivering a Council opinion on the 2017 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 
policies,1 and in particular Article 9(2) thereof, 
Having regard to the recommendation of the European Commission,2 
Having regard to the resolutions of the European Parliament,3 

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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On  16 November  2016,  the  Commission  adopted  the  Annual  Growth  Survey,4 
marking  the  start  of  the  2017  European  Semester  of  economic  policy  coordination. 
The priorities of the Annual Growth Survey were endorsed by the European Council 
on  9-10 March  2017.  On  16 November  2016,  on  the  basis  of  Regulation  (EU) 
No 1176/2011,  the  Commission  adopted  the  Alert  Mechanism  Report,5  in  which  it 
did not identify the United Kingdom as one of the Member States for which an in-
depth review would be carried out.  
The  2017  country  report  for  the  United  Kingdom6  was  published  on  22 February 
2017. It assessed the United Kingdom’s progress in addressing the country-specific 
recommendations adopted by the Council on 12 July 2016, the follow-up given to the 

OJ L 209, 2.8.1997, p. 1. 
COM(2017) 527 final. 
P8_ TA(2017)0038, P8_ TA(2017)0039, and P8_ TA(2017)0040. 
COM(2016) 725 final. 
COM(2016) 728 final. 
SWD(2017) 93 final. 

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recommendations adopted in previous years and United Kingdom’s progress towards 
its national Europe 2020 targets. 

On  21  April  2017,  the  United  Kingdom  submitted  its  2017 National  Reform 
Programme  and  on  27  April  2017  the  United  Kingdom  submitted  its  2017 
two 
take  account  of 
Convergence  Programme.  To 
programmes have been assessed at the same time. 

interlinkages, 

their 

the 

The relevant country-specific recommendations have been taken into account in the 
Member States' programmes for the European Structural and Investment Funds (ESI 
Funds) covering the 2014-2020 period. As foreseen in the legislation governing the 
ESI Funds,7 where it is necessary to support the implementation of relevant country-
specific  recommendations,  the  Commission  may  request  a  Member  State  to  review 
and  amend  its  relevant  ESI  Funds  programmes.  The  Commission  has  provided 
further guidelines on the application of those rules.8 

The United Kingdom is currently in the corrective arm of the Stability and Growth 
Pact.  Should  a  timely  and  durable  correction  have  been  achieved  in  2016-17,  the 
United  Kingdom  will  become  subject  to  the  preventive  arm  of  the  Stability  and 
Growth  Pact  and  to  the  transitional  debt  rule  in  2017-18.  In  its  2017  Convergence 
Programme,  the  government  expects  to  have  corrected  the  excessive  deficit  by  the 
fiscal year 2016-17, in line with the Council Recommendation of 19 June 2015, with 
a headline deficit of 2.7% of GDP. The headline deficit is then expected to increase 
slightly  to  2.8%  of  GDP  in  2017-18  before  declining  to  1.9%  of  GDP  in  2018-19. 
The Convergence Programme does not include a medium-term budgetary objective. 
According  to  the  Convergence  Programme,  the  general  government  debt-to-GDP 
ratio is expected to broadly stabilise around 87.5% from 2016-17 to 2018-19 before 
falling  to  84.8%  of  GDP  in  2020-21.  The  macroeconomic  scenario  underpinning 
these budgetary projections is favourable. While the measures needed to support the 
planned  deficit 
the 
macroeconomic  outlook  pose  a  risk  to  the  achievement  of  the  planned  deficit 
reduction. 

targets  are  overall  well  specified,  downside  risks 

to 

On 12 July 2016, the Council recommended that the United Kingdom put an end to 
the  excessive  deficit  situation  by  2016-17  and,  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.  Based  on  the  Commission  2017 
spring  forecast,  the  headline  deficit  is  projected  to  have  reached  2.7%  of  GDP  in 
2016-17, in line with the target recommended by the Council. In 2017-18, there is a 
risk of some deviation from the preventive arm requirement.  

In the light of its fiscal situation and notably of its debt level, the United Kingdom is 
expected to further adjust towards an appropriate medium-term budgetary objective. 
According  to  the  commonly  agreed  adjustment  matrix  under  the  Stability  and 
Growth Pact, that adjustment translates into a requirement of a nominal growth rate 

Article  23  of  Regulation  (EU)  No  1303/2013  of  the  European  Parliament  and  of  the  Council  of  17 
December  2013  laying  down  common  provisions  on  the  European  Regional  Development  Fund,  the 
European Social Fund, the Cohesion Fund, the European Agricultural Fund for Rural Development and 
the  European  Maritime  and  Fisheries  Fund  and  laying  down  general  provisions  on  the  European 
Regional Development Fund, the European Social Fund, the Cohesion Fund and the European Maritime 
and  Fisheries  Fund  and  repealing  Council  Regulation  (EC)  No  1083/2006,  OJ  L  347,  20.12.2013,  p. 
320. 
COM(2014) 494 final. 

(3) 

(4) 

(5) 

(6) 

(7) 

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of  net  primary  government  expenditure9  which  does  not  exceed  1.8%.  It  would 
correspond  to  an  annual  structural  adjustment  of  0.6%  of  GDP.  Under  unchanged 
policies,  there  is  a  risk  of  some  deviation  from  that  requirement  over  the  period 
2017-18 and 2018-19 taken together. At the same time, the United Kingdom is prima 
facie not projected to comply with the transitional debt rule in 2017-18 but is forecast 
to  comply  in  2018-19.  Overall,  the  Council  is  of  the  opinion  that  the  United 
Kingdom needs to stand ready to take further measures as of 2017-18 to comply with 
the provisions of the Stability and Growth Pact. However, as foreseen in Regulation 
(EC) No 1466/97, the assessment of the budgetary plans and outcomes should take 
account  of  the  Member  State’s  budgetary  balance  in  the  light  of  the  cyclical 
conditions.  As  recalled  in  the  Commission  Communication  accompanying  these 
country-specific  recommendations,  the  future  assessment  will  need  to  take  due 
account of the goal to achieve a fiscal stance that contributes to both strengthening  
the ongoing recovery and ensuring the sustainability of the United Kingdom’s public 
finances.  In  that  context,  the  Commission  intends  to  make  use  of  the  applicable 
margin of appreciation in the light of the cyclical situation of the United Kingdom. 

Private  investment  has  been  consistently  well  below  the  EU  average  and  public 
investment marginally below. Productivity is significantly below the G7 average and 
has  stagnated  since  2008.  The  government  is  putting  a  strong  policy  emphasis  on 
raising  investment  to  boost  productivity  growth.  A  key  challenge  is  addressing 
significant  shortcomings  in  the  capacity  and  quality  of  the  United  Kingdom’s 
infrastructure  networks.  Road  congestion  is  high  and  rail  capacity  is  increasingly 
inadequate  in  places  in  the  face  of  rapidly  growing  demand.  There  is  also  an 
increasingly urgent need for higher investment in new energy generation and supply 
capacity.  The  National  Infrastructure  Delivery  Plan  sets  out  ambitious  plans  to 
improve the UK’s economic infrastructure and a number of investment decisions on 
major transport and energy projects were made in 2016. However, concerns remain 
over  whether  adequate  public  and  private  investment  can  be  secured  to  address 
infrastructure backlogs in a timely and cost-effective way. The United Kingdom has 
a  major  challenge  to  increase  housing  supply.  A  chronic  shortage  of  housing 
contributes to high and rising house prices and has significant economic and social 
costs,  especially  around  poles  of  economic  growth.  The  reformed  planning  system, 
and  a  range  of  complementary  housing  policies,  are  together  somewhat  more 
supportive  of  increased  residential  construction.  Nevertheless,  a  number  of 
constraints  on  housing  supply  remain,  including  very  strict  and  complex  regulation 
of the land market and residential construction, and new housing supply is still  not 
keeping up with the growth in demand.  

Labour  market  headline  figures  continue  to  be  positive,  with  low  long  term  and 
youth  unemployment  overall.  However  the  levels  of  inactivity,  part-time  and  low-
wage  employment  have  room  for  improvement.  Earnings  growth  remains  modest, 
linked  to  weak  productivity  growth.  Concerns  about  skills  supply,  utilisation  and 
progression  remain.  There  have  been  significant  policy  developments  focusing  on 
skills and progression via reforms to technical education and apprenticeships. Quality 
in apprenticeships will need focus on both the qualification level undertaken and the 

Net  government  expenditure  is  comprised  of  total  government  expenditure  excluding  interest 
expenditure,  expenditure  on  Union  programmes  fully  matched  by  Union  funds  revenue  and  non-
discretionary  changes  in  unemployment  benefit  expenditure.  Nationally  financed  gross  fixed  capital 
formation  is  smoothed  over  a  4-year  period.  Discretionary  revenue  measures  or  revenue  increases 
mandated by law are factored in. One-off measures on both the revenue and expenditure sides are netted 
out. 

(8) 

(9) 

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subject  area  in  which  it  is  taken.  Other,  strategically  important,  funded  routes  for 
skills  enhancement,  particularly  for  people  over  25,  would  expand  the  skills  offer 
available  to  the  State,  to  business  and  to  individuals  seeking  career  progression. 
There  are  also  challenges  related  to  the  supply  of  childcare  and  social  care,  which 
contribute to the high rate of female part-time employment. Childcare reforms to date 
have been constant but gradual. A step-change is likely with the full roll-out of some 
initiatives  in  the  next  two  years.  The  participation  of  children  less  than  three  years 
old  in  formal  childcare  is  relatively  low.  While  recent  measures  improve  to  some 
extent the availability and affordability of childcare for children aged 3 and 4, they 
do  not  address  the  issue  of  childcare  supply  for  children  under  3  years  old.  As  a 
result  of  previously  announced  reforms  and  cutbacks,  in  particular  to  in-work 
support, social policy outcomes including child poverty may come under pressure in 
the near-to-medium term, particularly in a context of higher inflation. The number of 
children in poverty who live in working households is a particular cause for concern. 

In  the  context  of  the  European  Semester,  the  Commission  has  carried  out  a 
comprehensive  analysis  of  United  Kingdom’s  economic  policy  and  published  it  in 
the  2017  country  report.  It  has  also  assessed  the  Convergence  Programme  and  the 
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  socioeconomic  policy  in  the  United 
Kingdom  but  also  their  compliance  with  EU  rules  and  guidance,  given  the  need  to 
strengthen the EU’s overall economic governance by providing EU-level input into 
future national decisions. 

(10) 

(11) 

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 United Kingdom take action in 2017 and 2018 to: 

1. 

2. 

3. 

Pursue  its  fiscal  policy  in  line  with  the  requirements  of  the  preventive  arm  of  the 
Stability and Growth Pact, which translates into a substantial fiscal effort for 2018. 
When taking policy action, consideration should be given to achieving a fiscal stance 
that  contributes  to  both  strengthening  the  ongoing  recovery  and  ensuring  the 
sustainability of United Kingdom’s public finances. 

Take  further  steps  to  boost  housing  supply,  including  through  reforms  to  planning 
rules and their implementation. 

Address  skills  mismatches  and  provide  for  skills  progression,  including  by 
continuing  to  strengthen  the  quality  of  apprenticeships  and  providing  for  other 
funded “Further Education” progression routes. 

Done at Brussels, 

For the Council 
The President 

10 

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

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