Recommendation for a COUNCIL RECOMMENDATION on the 2019 National Reform Programme of the United Kingdom and delivering a Council opinion on the 2018-2019 Convergence Programme of the United Kingdom
Date: 2019-06-05
Institutions: European Commission, Secretariat-General
Subjects: United Kingdom, budget deficit, economic policy, economic reform, housing policy, innovation, investment, public expenditure, stability pact, stability programme

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   EUROPEAN COMMISSION  Brussels, 5.6.2019  COM(2019) 528 final  Recommendation for a COUNCIL RECOMMENDATION on the 2019 National Reform Programme of the United Kingdom and delivering a Council opinion on the 2018-2019 Convergence Programme of the United Kingdom    
 
 
Recommendation for a 

COUNCIL RECOMMENDATION 

on the 2019 National Reform Programme of the United Kingdom and delivering a 
Council opinion on the 2018-2019 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 Commission, 

Having regard to the resolutions of the European Parliament, 

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) 

On 21 November 2018, the Commission adopted the Annual Growth Survey, marking 
the start of the 2019 European Semester for 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  21  March 
2019.  On  21  November  2018,  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 2019 country report for the United Kingdom2 was published on 27 February 2019. 
It  assessed  the  United  Kingdom’s  progress  in  addressing  the  country-specific 
recommendations adopted by the Council on 13 July 2018, the follow-up given to the 
recommendations  adopted  in  previous  years  and  the  United  Kingdom's  progress 
towards its national Europe 2020 targets.  

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OJ L 209, 2.8.1997, p. 1. 
SWD(2019) 1027 final. 

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On  23  April  2019,  the  United  Kingdom  submitted  its  2019  National  Reform 
Programme  and  its  2018-2019  Convergence  Programme.  In  order  to  take  account  of 
their interlinkages, the two programmes have been assessed at the same time. 

On 29 March 2017, the United Kingdom notified the European Council of its intention 
to leave the European Union. When the United Kingdom leaves the European Union, 
it will become a third country. As there is uncertainty over the date and terms of the 
United Kingdom’s withdrawal, as well as the United Kingdom’s future relations with 
the  EU,  this  document  does  not  speculate  on  the  possible  economic  implications  of 
different  scenarios.  In  the  instance  that  the  United  Kingdom  leaves  the  European 
Union  on  the  basis  of  the  Withdrawal  Agreement,  which  has  been  agreed  by  the 
government  of  the  United  Kingdom  and  which  the  European  Council  (Article  50) 
endorsed  on  25  November  2018,  Union  law,  including  the  European  Semester,  will 
continue  to  apply  to  and  in  the  United  Kingdom,  for  the  duration  of  the  transition 
period established by that Agreement. 

Relevant country-specific recommendations have been addressed in the programming 
of  the  European  Structural  and  Investment  Funds  ('ESI  Funds')  for  the  2014-2020 
period.  As  provided  for  in  Article  23  of  Regulation  (EU)  No  1303/2013  of  the 
European  Parliament  and  of  the  Council3,  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 ESI Funds to sound economic governance4.  

The  United  Kingdom  is  currently  in  the  preventive  arm  of  the  Stability  and  Growth 
Pact  and  subject  to  the  transitional  debt  rule  until  2019-2020.  In  its  2018-2019 
Convergence Programme, the government expects the headline deficit to increase from 
1.2% of GDP in 2018-2019 to 1.4% of GDP in 2019-2020 and to fall to 1.1% of GDP 
in  2020-2021.  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 fall from 85.5% in 2018-2019 to 83.3% 
in  2019-2020  and  to  82.9%  of  GDP  in  2020-2021.  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  expenditure5  in  a  number  of  areas  pose  a  risk  to  the  achievement  of  the 
planned deficit path. 

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. 
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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(9) 

On  13  July  2018,  the  Council  recommended  the  United  Kingdom  to  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. Based 
on the Commission 2019 spring forecast, there is a risk of a significant deviation from 
the requirements of the preventive arm in 2019-2020. 

In 2020-2021, in view of the United Kingdom's general government debt ratio above 
60% of GDP and projected output gap of 0.3%, the nominal growth rate of net primary 
government expenditure should not exceed 1.9%, 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, there is a risk of a significant deviation from 
the requirement in  2020-2021. The United Kingdom  is  projected to  comply with  the 
transitional  debt  rule  in  2019-2020,  as  a  result  of  the  allowed  annual  deviation  of 
0.25%, and with the debt rule in 2020-2021. Overall, the Council is of the opinion that 
the United Kingdom needs to stand ready to take further measures as of 2019-2020 to 
comply with the provisions of the Stability and Growth Pact. 

The  United  Kingdom  has  long  been  the  G7  economy  with  the  lowest  capital 
investment as a share of GDP. Investment also fell particularly sharply in the financial 
crisis,  and  a  post-crisis  recovery  in  private  investment  has  stalled.  The  United 
Kingdom’s  research  and  development  investment  intensity  has  been  around  1.7%  of 
GDP  for  the  past  decade,  below  the  EU  average.  Research  and  development 
investment  is  concentrated  in  a  limited  number  of  companies  and  regions.  These 
broad-based  shortfalls  in  both  physical  and  human  capital  are  a  root  cause  of  the 
United Kingdom's relatively low and stagnant labour productivity. 

(10)  The  United  Kingdom  has  a  persistent  housing  shortage.  A  post-crisis  recovery  in 
house  building  has  lost  momentum.  Capacity  constraints  are  emerging  while 
residential  construction  remains  below  what  is  required  to  meet  estimated  demand. 
House prices and rents remain high, especially in areas of high housing demand, with 
signs  of  overvaluation.  Significantly  fewer  young  adults  now  own  their  own  homes. 
The government is implementing a range of measures to boost housing supply. At the 
same time, the amount and location of land available for new housing remains limited 
by tight regulation of the land market, particularly around big towns and cities. 

(11)  Major  investment  is  needed  to  modernise  and  expand  infrastructure  networks  while 
bringing  down  project  costs  and  greenhouse  gas  emissions.  There  are  growing 
capacity pressures in road, rail and aviation networks. The United Kingdom needs to 
deliver significant new and greener energy generation and supply capacity. The United 
Kingdom’s infrastructure development has tended to be costly and slow. After decades 
of public under-investment, the government is starting to deal with the infrastructure 
deficit, but it will be challenging to secure the amount of outside funding required in 
the government’s projections in a cost effective manner. 

(12)  Although  unemployment  is  low,  real  wages  remain  below  their  pre-crisis  peak.  The 
high  proportion  of  low-skilled  employees  has  limited  career  progression  prospects, 
weighing on productivity and contributing to high levels of in-work poverty. There is 
scope to improve the effectiveness of the education and training systems in basic and 
technical skills. The government is making reforms to both classroom and work-based 
training,  but  overall  registrations  for  the  new  twin-track  system  are  far  fewer  than 
expected. 

(13) 

In  the  context  of  the  2019  European  Semester,  the  Commission  has  carried  out  a 
comprehensive analysis of the United Kingdom’s economic policy and published it in 

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the 2019 country report. It has also assessed the 2018-2019 Convergence Programme 
and  the  2019  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  Union  rules  and  guidance.  This 
reflects the need to strengthen the Union’s overall economic governance by providing 
Union-level input into future national decisions.  

(14) 

In the light of this assessment, the Council has examined the 2018-2019 Convergence 
Programme and its opinion6 is reflected in particular in recommendation (1) below. 

HEREBY RECOMMENDS that the United Kingdom take action in 2019 and 2020 to: 

1. 

2. 

Ensure that the nominal growth rate of net primary government expenditure does not 
exceed 1.9% in 2020-2021, corresponding to an annual structural adjustment of 0.6% 
of GDP. 

Focus  investment-related  economic  policy  on  research  and  innovation,  housing, 
training  and  improving  skills,  sustainable  transport  and  low  carbon  and  energy 
transition, taking into account regional diversity. 

Done at Brussels, 

For the Council 
The President 

6 

Under Article 5(2) of Council Regulation (EC) No 1466/97. 

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