Recommendation for a COUNCIL RECOMMENDATION on the 2018 National Reform Programme of the United Kingdom and delivering a Council opinion on the 2018 Convergence Programme of the United Kingdom
Date: 2018-05-23
Institutions: European Commission, Secretariat-General
Subjects: United Kingdom, apprenticeship, budget deficit, economic policy, economic reform, housing policy, public finance, real estate market, stability programme, withdrawal from the EU

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   EUROPEAN COMMISSION  Brussels, 23.5.2018 COM(2018) 427 final  Recommendation for a COUNCIL RECOMMENDATION on the 2018 National Reform Programme of the United Kingdom  and delivering a Council opinion on the 2018 Convergence Programme of the United Kingdom  
 
 
Recommendation for a 

COUNCIL RECOMMENDATION 

on the 2018 National Reform Programme of the United Kingdom 

and delivering a Council opinion on the 2018 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) 

1 
2 
3 
4 

On 22 November 2017, the Commission adopted the Annual Growth Survey, marking 
the start of the 2018 European Semester of economic policy coordination. It took due 
account  of  the  European  Pillar  of  Social  Rights,  proclaimed  by  the  European 
Parliament, the Council and the Commission on 17 November 2017. The priorities of 
the  Annual  Growth  Survey  were  endorsed  by  the  European  Council  on  22  March 
2018.  On  22  November  2017,  on  the  basis  of  Regulation  (EU)  No  1176/2011,  the 
Commission also adopted the Alert Mechanism Report, 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 2018 country report for the United Kingdom4 was published on 7 March 2018. It 
the  country-specific 
assessed 

the  United  Kingdom’s  progress 

in  addressing 

OJ L 209, 2.8.1997, p. 1. 
COM(2018) 427 final. 
P8_TA(2018)0077 and P8_TA(2018)0078. 
SWD(2018) 226 final. 

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(3) 

(4) 

(5) 

(6) 

recommendations adopted by the Council on 11 July 2017, the follow-up given to the 
recommendations  adopted  in  previous  years  and  the  United  Kingdom's  progress 
towards its national Europe 2020 targets. 

On 29 March 2017, the United Kingdom notified the European Council of its intention 
to  leave  the  European  Union.  Unless  a  ratified  withdrawal  agreement  establishes 
another date or the European Council, in accordance with Article 50(3) of the Treaty 
on European Union and in agreement with the United Kingdom, unanimously decides 
that  the Treaties cease  to apply at a later  date, all  Union primary and secondary  law 
will cease to apply to the United Kingdom from 30 March 2019, 00:00h (CET). The 
United Kingdom will then become a third country. Negotiations are on-going in order 
to  ensure  an  orderly  withdrawal,  including  the  possibility  to  have  a  transition  period 
until  the  end  of  2020  during  which  Union  law  will  continue  to  apply  to  and  in  the 
United Kingdom. In this context, the Commission has not presented or elaborated on 
any  scenario  based  on  possible  arrangements  between  the  European  Union  and  the 
United Kingdom beyond Brexit as these matters are still under negotiation. 

On  30  April  2018,  the  United  Kingdom  submitted  its  2018  National  Reform 
Programme  and  its  2018  Convergence  programme.  To  take  account  of  their 
interlinkages, the two programmes have been assessed at the same time. 

Relevant country-specific recommendations have been addressed in 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 of the European Parliament 
and  of  the  Council5,  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 that provision 
in  guidelines  on  the  application  of  the  measures  linking  the  effectiveness  of  the 
European Structural and Investment Funds to sound economic governance6.  

The  United  Kingdom  is  currently  in  the  preventive  arm  of  the  Stability  and  Growth 
Pact  and  subject  to  the  transitional  debt  rule.  In  its  2017-2018  Convergence 
Programme, the government expects the headline deficit to fall from 2.2 % of GDP in 
2017-2018  to  1.8  %  of GDP  in  2018-2019  and to  1.7  %  of  GDP  in  2019-2020.  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 85.5 %  from 2017-2018 to  2019-2020 before 
falling  to  84.8  %  of  GDP  in  2021-2022.  The  macroeconomic  scenario  underpinning 
those  budgetary  projections  is  plausible.  While  the  measures  needed  to  support  the 
planned  deficit  targets  are  overall  well  specified,  growing  pressures  on  government 
expenditure in a number of areas pose a risk to the achievement of the planned deficit 
reduction. 

5 

6 

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. 

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(7) 

(8) 

(9) 

On  11  July  2017,  the  Council  recommended  the  United  Kingdom  to  ensure  that  the 
nominal growth rate of net primary government expenditure7 does not exceed 1.8 % in 
2018-2019, corresponding to an annual structural adjustment of 0.6 % of GDP. At the 
same time, the Council stated that consideration should be given to achieving a fiscal 
stance  that  contributes  to  both  strengthening  the  ongoing  recovery  and  ensuring  the 
sustainability  of  the  United  Kingdom's  public  finances.  Based  on  the  Commission 
2018  spring  forecast,  there  is  a  risk  of  some  deviation  from  the  requirements  of  the 
preventive arm in 2018-2019. 

In 2019-2020, in view of the United Kingdom's general government debt ratio above 
60  %  of  GDP  and  projected  output  gap  of  0.4  %,  the  nominal  growth  rate  of  net 
primary government expenditure should not exceed 1.6 %, in line with the structural 
adjustment  of  0.6  %  of  GDP  stemming  from  the  matrix  of  requirements  under  the 
Stability and Growth Pact. Under unchanged policies, the United Kingdom is forecast 
to  comply  with  the  requirement  in  2019-2020.  The  United  Kingdom  is  prima  facie 
projected to comply with the transitional debt rule in 2018-2019 and in 2019-2020 as a 
result of the allowed annual deviation of 0.25 %. Overall, the Council is of the opinion 
that  the  United  Kingdom  needs  to  stand  ready  to  take  further  measures  as  of  2018-
2019 to comply with the provisions of the Stability and Growth Pact.   

Annual  net  housing  supply  continues  to  increase  amid  a  range  of  government 
initiatives  to  stimulate  the  housing  market  and  a  cyclical  recovery.  However,  it 
remains far below estimates of demand and the United  Kingdom continues  to face a 
major  challenge  in  delivering  sufficient  housing.  This  is  linked  to  very  strict  and 
complex regulation of the land market. Shortages of housing and high  housing costs 
are particular issues in areas of high and growing demand, such as in and around urban 
centres.  The  government  recognises  the  problem  and  has  set  ambitious  objectives  to 
increase supply in the coming years. At the same time, the government has reaffirmed 
its  commitment  to  limiting  development  around  urban  centres.  Home  ownership  has 
fallen  significantly  for  younger  people,  contributing  to  intergenerational  inequality. 
Labour  productivity  is  low  and  stagnant.  Large  parts  of  the  economy  perform 
comparatively  poorly  on  the  main  drivers  of  productivity  —  skills,  investment  and 
efficient  business  processes.  The  United  Kingdom's  road,  rail  and  aviation  networks 
also have significant and growing capacity pressures. 

(10)  Although headline labour market figures continue to be positive across most metrics, 
there are ongoing concerns about the quality of some employment. This is related to 
issues with skills development, atypical forms of work, earnings, productivity, labour 
market  participation  and  working-age  poverty.  There  have  been  significant  policy 
announcements  and  developments  on  all  of  these  issues.  Coherence  in  these  related 
policies  is  paramount.  On  skills,  much  of  the  focus  thus  far  has  been  on 
apprenticeships and reforms to technical education. A focus on quality for both could 
provide  a  sustainable  multiplier  effect  for  the  society  as  well  as  the  economy.  The 
United Kingdom is among those Member States that already meet over two-thirds of 
for  Quality  and  Effective 
the  draft  criteria 

the  European  Framework 

in 

7 

Net  primary  government  expenditure  comprises  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. 

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Apprenticeships, and therefore setting and monitoring quality targets, e.g. via graduate 
for 
tracking, 
apprenticeships  and  the  new  T-Levels  for  school  leavers  are  needed  for  lifelong 
learning options, particularly for those trapped in entry-level employment.  

feasible.  Resources  commensurate  with 

those  earmarked 

is 

(11)  Social  protection  and  inclusion  issues  also  need  attention  going  forward.  Childcare 
reforms  are  being  rolled  out,  but  more  provision  may  be  needed,  particularly  for 
children under three. The impact of some welfare reforms and cutbacks are yet to be 
fully felt, particularly for in-work families. 

(12) 

In  the  context  of  the  2018  European  Semester,  the  Commission  has  carried  out  a 
comprehensive analysis of the United Kingdom's economic policy and published it in 
the  2018  country  report.  It  has  also  assessed  the  2018  Convergence  Programme  and 
the 
the  2018  National  Reform  Programme  and 
recommendations  addressed  to  the  United  Kingdom  in  previous  years.  The 
Commission has taken into account not only their relevance for sustainable fiscal and 
socioeconomic  policy  in  the  United  Kingdom,  but  also  the  extent  to  which  they 
comply  with  Union  rules  and  guidance,  given  the  need  to  strengthen  the  European 
Union’s  overall  economic  governance  by  providing  Union-level  input  for  future 
national decisions.  

follow-up  given 

the 

to 

(13) 

In  the  light  of  this  assessment,  the  Council  has  examined  the  2018  Convergence 
Programme and its opinion is reflected in particular in recommendation 1 below. 

HEREBY RECOMMENDS that the United Kingdom take action in 2018 and 2019 to: 

1. 

2. 

3. 

Ensure that the nominal growth rate of net primary government expenditure does not 
exceed  1.6  %  in  2019-2020,  corresponding  to  an  annual  structural  adjustment  of    
0.6 % of GDP. 

Boost  housing  supply,  particularly  in  areas  of  highest  demand,  including  through 
additional reforms to the planning system. 

Address skills and progression needs by setting outcome targets for the quality and 
the effectiveness of apprenticeships and by investing more in upskilling those already 
in the labour force.  

Done at Brussels, 

For the Council 
The President 

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