Recommendation for a COUNCIL RECOMMENDATION on the 2020 National Reform Programme of the United Kingdom and delivering a Council opinion on the 2020 Convergence Programme of the United Kingdom
Date: 2020-05-20
Institutions: European Commission, Secretariat-General
Subjects: United Kingdom, economic policy, economic recovery, economic reform, epidemic, infectious disease, innovation, investment, social security, stability pact, stability programme

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   EUROPEAN COMMISSION  Brussels, 20.5.2020  COM(2020) 528 final  Recommendation for a COUNCIL RECOMMENDATION on the 2020 National Reform Programme of the United Kingdom and delivering a Council opinion on the 2020 Convergence Programme of the United Kingdom  
 
Recommendation for a 

COUNCIL RECOMMENDATION 

on the 2020 National Reform Programme of the United Kingdom and delivering a 
Council opinion on the 2020 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  Regulation  (EU)  No  1176/2011  of  the  European  Parliament  and  of  the 
Council  of  16  November  2011  on  the  prevention  and  correction  of  macroeconomic 
imbalances2, and in particular Article 6(1) 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  17  December  2019,  the  Commission  adopted  the  Annual  Sustainable  Growth 
Strategy,  marking  the  start  of  the  2020  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. 
On  17  December  2019,  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. 

Following  the  withdrawal  by  the  United  Kingdom  from  the  EU  on  31  January  2020 
and the entry into force of the Withdrawal Agreement, the United Kingdom entered a 
transition  period,  lasting  until  31  December  2020.  A  single  decision  taken  before  1 
July 2020 by the EU and the United Kingdom in the Joint Committee foreseen by the 
Withdrawal Agreement may extend this period for up to one or two years. During this 
period, Union law — including that related to the European Semester — continues to 
apply to and within the United Kingdom.  

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2 

OJ L 209, 2.8.1997, p. 1. 
OJ L 306, 23.11.2011, p. 25. 

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(3) 

(4) 

(5) 

(6) 

(7) 

The 2020 country report for the United Kingdom3 was published on 26 February 2020. 
It  assessed  the  United  Kingdom’s  progress  in  addressing  the  country-specific 
recommendations adopted by the Council on 9 July 20194, the follow-up given to the 
recommendations  adopted  in  previous  years  and  the  United  Kingdom's  progress 
towards its national Europe 2020 targets.  

On 11 March 2020, the World Health Organization officially declared the COVID-19 
outbreak  a  global  pandemic.  It  is  a  severe  public  health  emergency  for  citizens, 
societies  and  economies.  It  is  putting  national  health  systems  under  severe  strain, 
disrupting  global  supply  chains,  causing  volatility  in  financial  markets,  triggering 
consumer  demand  shocks  and  having  negative  effects  across  various  sectors.  It  is 
threatening  people’s  jobs,  their  incomes  and  companies’  business.  It  has  delivered  a 
major  economic  shock  that  is  already  having  serious  repercussions  in  the  European 
Union. On 13 March 2020, the Commission adopted a Communication5 calling for a 
coordinated economic response to the crisis, involving all actors at national and Union 
level.  

Several  Member States have declared a state of  emergency or introduced emergency 
measures.  Any  emergency  measures  should  be  strictly  proportionate,  necessary, 
limited in time, and in line with European and international standards. They should be 
subject to democratic oversight and independent judicial review. 

On  20  March  2020,  the  Commission  adopted  a  Communication  on  the  activation  of 
the general escape clause of the Stability and Growth Pact6. The clause, as set out in 
Articles 5(1), 6(3), 9(1) and 10(3) of Regulation  (EC) 1466/97 and Articles 3(5) and 
5(2) of Regulation (EC) 1467/97, facilitates the coordination of budgetary policies in 
times  of  severe  economic  downturn.  In  its  Communication,  the  Commission  shared 
with the Council its view that, given the expected severe economic downturn resulting 
from  the COVID-19 outbreak, the  current  conditions  permit  activation of the clause. 
On  23  March  2020,  the  Ministers  of  Finance  of  the  Member  States  agreed  with  the 
assessment of the Commission. The activation of the general escape clause allows for 
a temporary departure from the adjustment path  towards the medium-term budgetary 
objective,  provided  that  this  does  not  endanger  fiscal  sustainability  in  the  medium 
term. For the corrective arm, the Council may also decide, on a recommendation from 
the Commission,  to  adopt  a revised  fiscal  trajectory. The  general  escape  clause does 
not suspend the procedures of the Stability and Growth Pact. It allows Member States 
to depart from the budgetary requirements that would normally apply while enabling 
the  Commission  and  the  Council  to  undertake  the  necessary  policy  coordination 
measures within the framework of the Pact. 

Continued  action  is  required  to  limit  and  control  the  spread  of  the  pandemic, 
strengthen  the  resilience  of  the  national  health  systems,  mitigate  the  socio-economic 
consequences through supportive measures for business and households and to ensure 
adequate  health  and  safety  conditions  at  the  workplace  with  a  view  to  resuming 
economic  activity.  The  Union  should  fully  use  the  various  tools  at  its  disposal  to 
support  Member  States’  efforts  in  those  areas.  In  parallel,  Member  States  and  the 
Union should work together to prepare the measures necessary to get back to a normal 
functioning of our societies and economies and to sustainable growth, integrating inter 

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SWD(2020) 527 final. 
OJ C 301, 5.9.2019, p. 117. 
COM(2020) 112 final. 
COM(2020) 123 final. 

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(8) 

alia  the  green  transition  and  the  digital  transformation,  and  drawing  all  lessons  from 
the crisis. 

The  COVID-19  crisis  has  highlighted  the  flexibility  that  the  single  market  offers  to 
adapt  to  extraordinary  situations.  However,  in  order  to  ensure  a  swift  and  smooth 
transition to the recovery phase and the free movement of goods, services and workers, 
exceptional  measures that prevent  the single market  from  functioning  normally must 
be removed as soon as they are no longer indispensable. The current crisis has shown 
the need for crisis preparedness plans in the health sector, which include in particular 
improved  purchasing  strategies,  diversified  supply  chains  and  strategic  reserves  of 
essential  supplies.  They  are  key  elements  for  developing  broader  crisis  preparedness 
plans. 

(9) 

The  socio-economic  consequences  of  the  pandemic  are  likely  to  be  unevenly 
distributed  across  regions  in  the  United  Kingdom,  due  to  different  specialisation 
patterns.  This  poses  a  substantial  risk  of  further  widening  the  regional  disparities 
within the United Kingdom. The current situation calls for targeted policy responses. 

(10)  On  30  April  2020,  the  United  Kingdom  submitted  its  2020  National  Reform 
Programme and, on 7 May 2020, its 2020 Convergence Programme. In order to take 
account  of  their  interlinkages,  the  two  programmes  have  been  assessed  at  the  same 
time. 

(11)  The  United  Kingdom  is  currently  in  the  preventive  arm  of  the  Stability  and  Growth 
Pact  and  subject  to  the  debt  rule.  On  13  July  2018,  the  Council  recommended  the 
United  Kingdom  to  ensure  that  the  nominal  growth  rate  of  net  primary  government 
expenditure7  does  not  exceed  1,6%  in  2019-2020,  corresponding  to  an  annual 
structural adjustment of 0,6% of GDP. The Commission’s overall assessment confirms 
a  risk  of  significant  deviation  from  the  recommended  adjustment  path  towards  the 
medium-term  budgetary  objective  in  2019-2020  and  over  2018-2019  and  2019-2020 
taken together. Outturn data for 2019-2020 will be available in autumn 2020.  

(12) 

In its 2019-2020 Convergence Programme, the government plans the headline balance 
to deteriorate from a deficit of 2,2% of GDP in 2019-2020 to a deficit of 2,5% of GDP 
in 2020-21. The deficit is projected to increase to 3.1 % of GDP in 2021-22 and to fall 
to  2,4%  of  GDP  by  2024-2025.  After  decreasing  to  an  estimated  83,2%  of  GDP  in 
2019-2020, the general government debt-to-GDP ratio is expected to decrease to 82,9 
% in 2020-2021 according to the 2019-2020 Convergence Programme. However, the 
macroeconomic scenario underpinning those budgetary projections no longer appears 
realistic  as  it  does  not  take  into  account  the  economic  impact  of  the  COVID-19 
pandemic.  The  projections  in  the  Programme  also  do  not  take  into  account  the 
measures announced by the United Kingdom in response to the COVID-19 pandemic. 
The  macroeconomic  and  fiscal  outlook  is  affected  by  high  uncertainty  due  to  the 
COVID-19 pandemic. 

(13) 

In response to the COVID-19 pandemic, the United Kingdom has adopted budgetary 
measures  to  increase  the  capacity  of  its  health  system,  contain  the  pandemic,  and 
provide relief to those individuals and sectors that have been particularly affected. The 
projections  in  the  Convergence  Programme  do  not  include  these  measures,  but  they 

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 four-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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are taken into account in the Commission forecast. The budgetary measures amount to 
about  5.5%  of  GDP  and  include  support  to  employees,  the  self-employed  and 
businesses,  as  well  as  welfare  measures.  In  addition,  the  United  Kingdom  has 
announced measures that, while not having a direct budgetary impact, will contribute 
to  support  liquidity  to  businesses.  These  measures  include  loan  guarantees  of  about 
16% of GDP. The full implementation of those measures, followed by a refocusing of 
fiscal  policies  towards  achieving  prudent  medium-term  fiscal  positions  when 
economic  conditions  allow,  will  contribute  to  preserving  fiscal  sustainability  in  the 
medium term.  

(14)  Based on the Commission 2020 spring forecast under unchanged policies, the United 
Kingdom’s  general  government  balance  is  forecast  at  -10,7%  of  GDP  in  2020-2021 
and  -6,2%  in  2021-2022.  The  general  government  debt  ratio  is  projected  to  reach 
102,5%  of  GDP  in  2020-2021  and  100,2%  in  2022.  The  macroeconomic  scenario 
underlying the Convergence Programme does not take into account the impact of the 
COVID-19  pandemic,  and  the  debt  and  deficit  projections  in  it  therefore  differ 
substantially from those of the Commission. 

(15)  On 20 May 2020, the Commission issued a report prepared in accordance with Article 
126(3)  of  the  Treaty  due  to  United  Kingdom’s  projected  breach  of  the  3%  of  GDP 
deficit threshold in 2020-21.Overall, the analysis suggests that the deficit criterion as 
defined in the Treaty and in Regulation (EC) No 1467/1997 is not fulfilled. 

(16)  The ongoing COVID-19 crisis has created economic and social policy challenges that 
are unprecedented over the past decades. Unemployment is expected to rise by almost 
3pps  to  6,7%  in  2020  and  recover  slightly  to  6%  in  2021,  from  3,8%  in  2019.    The 
government of the United Kingdom has adopted emergency measures to alleviate the 
negative  effects  of  the  shock.  The  cost  of  the  direct  fiscal  support  will  depend  on 
demand but it may amount to around GBP 110 billion (5,5% of GDP), complemented 
by  GBP  330  billion  (16%  of  GDP)  of  credit  guarantees  for  bank  loans.  Short-time 
work schemes have been rolled out to protect employment and measures to support the 
self-employed  have  also  been  put  in  place.  The  coverage  and  eligibility  to  access 
advance payments of Universal Credit have been temporarily improved and the basic 
entitlement  under  universal  credit  temporarily  increased  for  twelve  months.  Local 
Authorities  are  also  to  receive  additional  one-off  funding  to  support  economically 
vulnerable  people  and  households.  The  government  also  announced  a  three-month 
moratorium  on  mortgage  payments  for  homeowners  in  difficulty  due  to  the 
coronavirus.  

(17)  To support the financial position of businesses, the Bank of England has reduced Bank 
Rate twice, in total from 0,75% to 0,1%, reduced the United Kingdom countercyclical 
capital  buffer  rate  to  0%  from  a  pre-existing  path  toward  2%  by  December  2020, 
increased its bond-buying program  to  GBP 645  billion, and enhanced its support for 
commercial bank lending to the real economy alongside government loan guarantees. 
The government offered sectors  a year-long moratorium from paying business rates, a 
deferral of VAT payments as well as cash grants for smaller firms. Liquidity support 
has also been made available in the form of guarantees and combined grants under the 
Coronavirus  Business  Interruption  Loan  Scheme  to  small  and  medium-sized 
enterprises (SMEs) below a given turnover threshold  using a wide range of business 
finance products, such as revolving credit facilities and other products including term 
loans.  In  addition,  a  general  scheme  to  provide  liquidity  to  SMEs,  but  also  to  larger 
businesses  that  could  include  investment  support,  has  been  made  available  to  all 

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sectors of  activity.  In the process  of designing  and implementing these  measures  the 
resilience of the banking sector needs to be taken into account. 

(18)  The COVID-19 pandemic has  revealed weaknesses in  the preparedness and capacity 
of the health systems in the United Kingdom to respond to such outbreaks, notably in 
terms  of  facilities,  staff  and  supplies.  This  has  resulted  in  the  emergency  set-up  of 
temporary  field  hospitals  for  COVID-19  patients  across  the  United  Kingdom.  The 
country’s manufacturing industry was urged to modify its production lines to urgently 
produce  additional  medical  equipment,  such  as  ventilators,  in  order  to  cover  the 
expected  level  of  demand.  The  COVID-19  crisis  has  further  accentuated  existing 
health workforce shortages. Managing similar crises in the future calls for investments 
into  the  health  systems  across  the  United  Kingdom,  including  effective  and  well-
resourced  public  health  measures.  These  investments  should  aim  at  providing  the 
necessary  equipment,  facilities  and  the  required  skilled  labour,  and  overall,  the 
capacity  to  deliver  all  expected  regular  healthcare  services  alongside  the  care  for 
patients with COVID-19 or similar infectious diseases. 

(19)  The  current  crisis  is  likely  to  have  a  bigger  impact  on  the  most  vulnerable, 
exacerbating poverty. The risk of poverty  or social exclusion was already increasing 
before the crisis, despite record low unemployment. In-work poverty and child poverty 
are also high. Welfare cuts and reforms risk undermining the strong poverty-reducing 
effect of the United Kingdom tax-benefit system. There is scope to strengthen support 
to the most vulnerable, including children in poverty, especially given that the crisis is 
expected to further increase  income inequality. 

(20) 

Improving labour productivity performance remains a major challenge for the United 
Kingdom. Output per hour is significantly lower in the United Kingdom than in most 
other developed economies, and is barely higher than it was before the financial crisis. 
GDP growth has been driven by employment growth, with practically no increases in 
productivity in the recent past. Despite a tight labour market, United Kingdom labour 
productivity  has  been  essentially  flat  since  early  2018.  Real  wage  growth  has  also 
remained  slow.  Many  parts  of  the  United  Kingdom  are  relatively  poor  with 
comparatively  low  levels  of  investment  in  skills  and  infrastructure.  Limited  career 
progression prospects for people in low-wage jobs negatively affect both productivity 
and poverty. This condition is set to continue and may even be exacerbated in the light 
of the COVID-19 crisis. The recent pandemic also poses significant challenges for the 
education and training systems in the United Kingdom notably as a result of distance 
learning  and  varying  access  to  structured  learning.    Consequently,  there  is  scope  to 
increase productivity by  addressing broad-based  problems such as low investment  in 
equipment, infrastructure and research and development, and skills gaps, especially in 
basic  and  technical  skills.  The  United  Kingdom  aims  to  invest  more  in  research  and 
innovation and improve the use of existing technologies across the economy.  

(21)  To  foster  the  economic  recovery,  it  will  be  important  to  front-load  mature  public 
investment  projects  and  promote  private  investment,  including  through  relevant 
reforms. The United Kingdom has a persistent housing shortage. Capacity constraints 
are  emerging  while  residential  construction  remains  below  what  is  required  to  meet 
estimated  demand.  The  amount  and  location  of  land  available  for  new  housing  is 
limited by tight regulation of the land market, particularly around big towns and cities. 
The  building  sector  remains  key  for  housing  as  well  as  meeting  future  energy 
efficiency and climate targets although reducing the amount of energy used for home 
heating is complicated by the age of the housing stock and its slow replacement. After 
decades  of  public  under-investment,  the  government  has  started  to  deal  with  the 

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infrastructure  deficit.  There  has  been  encouraging  progress  on  investment  in 
renewables and significant emission reduction has been achieved in the power sector. 
However, moving towards climate neutrality still faces challenges across the whole of 
the  economy.  Use  of  the  United  Kingdom’s  road,  rail  and  aviation  networks  is 
reaching  capacity  and  this  contributes  to  congestion  and  air  pollution.  The  United 
Kingdom has an ambition to be at the forefront of zero emission vehicles but most of 
the rail network is not yet electrified. Although the coverage of full fibre networks in 
the  United  Kingdom  is  still  modest,  network  competition  in  the  full  fibre  market  is 
growing  as  the  government  is  significantly  increasing  public  support  towards  fibre 
network  rollout.  Such  investment  in  digital  infrastructure,  however,  needs  to  be 
accompanied  by  improved  digital  skills  as  the  United  Kingdom  suffers  from  a 
structural deficit of IT specialist skills.  

(22)  While the present recommendations focus on tackling the socio-economic impacts of 
the  pandemic  and  facilitating  the  economic  recovery,  the  2019  country-specific 
recommendations adopted by the Council on 9 July 2019 also covered reforms that are 
structural  challenges.  Those 
essential 
recommendations remain pertinent and will continue to be monitored in the European 
Semester until the end of the transition period.  

to  address  medium- 

long-term 

to 

(23)  The  European  Semester  provides  the  framework  for  continuous  economic  and 
employment  policy  coordination  in  the  Union,  which  can  contribute  to  a  sustainable 
economy.  Member  States  have  taken  stock  of  progress  regarding United  Nations’ 
Sustainable  Development  Goals  (SDGs)  implementation  in  their  2020  National 
Reform  Programmes.  By  ensuring  the  full  implementation  of  the  recommendations 
below, the  United  Kingdom  will  contribute  to  the  progress  towards  the SDGs and  to 
the common effort of ensuring competitive sustainability in the Union.  

(24) 

In  the  context  of  the  2020  European  Semester,  the  Commission  has  carried  out  a 
comprehensive analysis of the United Kingdom’s economic policy and published it in 
the 2020 country report8. It has also assessed the 2020 Convergence Programme and 
the  2020  National  Reform  Programme  and 
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, given the 
need to strengthen the Union’s overall economic governance by providing Union-level 
input into future national decisions.  

follow-up  given 

the 

to 

(25) 

In  the  light  of  that  assessment,  the  Council  has  examined  the  2020  Convergence 
Programme and its opinion9 is reflected in particular in recommendation (1) below, 

HEREBY RECOMMENDS that the United Kingdom take action in 2020 and 2021 to: 

1. 

In  line  with  the  general  escape  clause,  take  all  necessary  measures  to  effectively 
address the pandemic, sustain the economy and support the ensuing recovery. When 
economic  conditions  allow,  pursue  fiscal  policies  aimed  at  achieving  prudent 
medium-term  fiscal  positions  and  ensuring  debt  sustainability,  while  enhancing 
investment. Strengthen the resilience of the health system.  

8 
9 

SWD(2020) 527 final. 
Under Article 9(2) of Council Regulation (EC) No 1466/97. 

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2. 

3. 

Ensure the adequacy and coverage of the social protection system to provide support 
for all and in particular those most affected by the crisis. 

Foster innovation and support human capital development. Front-load mature public 
investment projects and promote private investment to foster the economic recovery. 
Focus investment on the green and digital transition, in particular on housing, clean 
and efficient production and use of energy, sustainable transport infrastructures and 
high speed broadband networks. 

Done at Brussels, 

For the Council 
The President 

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