BROAD ECONOMIC POLICY GUIDELINES
Commission Report on the implementation of the 2001 Broad Economic Policy Guidelines.
|Deposited in Parliament:
||12 March 2002|
|Basis of consideration:
||EM of 19 March 2002|
|Previous Committee Report:
||None; but see (22389) 8261/01 and (22508) 9326/01: HC 152-ii (2001-02), paragraph 3 (17 October 2001)
|To be discussed in Council:
|Committee's assessment:||Politically important
20.1 Broad Economic Policy Guidelines (BEPGs) form part
of an annual process of policy formulation, implementation and
surveillance and ensure that Member States' economic policies
are consistent with the goals of the EC Treaty, such as non-inflationary
economic growth, respecting the environment, a high level of employment
and social protection and a raised standard of living and quality
of life. Article 249 EC makes it clear that the recommendations
included in the BEPGs are not binding on Member States.
20.2 Following their approval by the June 2001 Göthenburg
European Council, the 2001 BEPGs were adopted by the ECOFIN Council.
The BEPGs consisted of general or "horizontal recommendations"
and country-specific recommendations. The horizontal recommendations
covered eight specific goals: ensure growth and stabilityoriented
macro-economic policies; improve the quality and sustainability
of public finances; invigorate labour markets; ensure efficient
product (goods and services) markets; promote the efficiency and
integration of the EU financial services market; encourage entrepreneurship;
speed up the transition to the knowledgebased economy; and
enhance environmental sustainability. In our Report of 17 October
2001,we recommended for debate both the Commission Recommendation
and the Council Recommendation for the 2001 BEPGs. The debate
was held on 9 January 2002.
20.3 The report provides an assessment of the degree
of implementation of the 2001 BEPGs and prepares the ground for
the 2002 BEPGs. It contains a general overview of each of the
key policy areas and assessments of the implementation of the
recommendations for each Member State.
20.4 The Economic Secretary to the Treasury (Ruth Kelly)
describes the key messages of the report in her Explanatory Memorandum
of 18 March:
" Macroeconomic performance worsened under
the continuing effects of adverse economic shocks. Job creation
slowed, but a small decline in unemployment was achieved.
- Several Member States are not yet fulfilling the 'close to
balance or in surplus' requirement of the Stability and Growth
- Although several Member States made progress through reform
of pension systems and the creation of reserve funds, some Member
States need to take further measures to ensure long-term sustainability
of public finances.
- There has been progress in invigorating labour markets, but
reform of tax-benefit systems has been limited. Barriers to geographical
mobility still need to be addressed.
- The functioning of European product markets improved, but
improvements are still required in reducing barriers to cross-border
trade in services, continuing liberalisation in network industries,
and reducing state aids in some Member States.
- Further progress has been made in improving the functioning
of capital markets, but implementation of the Financial Services
Action Plan needs new impetus.
- Many Member States reduced the regulatory burden for SMEs
(small-medium enterprises) and for improving their access to finance.
However, differences persist between Member States in terms of
the start up time and costs for SMEs.
- Progress continued towards a knowledge-based economy, but
the deadline to agree how to deliver the Community patent was
missed, and the unbundling of the local loop remains slow.
- Member States introduced a variety of market-based instruments
to contribute to environmental sustainability."
20.5 As regards the assessment for the UK, the report
" While the economy decelerated in 2001, in
association with the global slowdown, growth remained respectable
above 2% supported by strong household expenditure. Unemployment
fell to around 5% by the end of the year. HICP [harmonised index
of consumer prices] inflation, at 1.0% in December, was close
to the lowest in the EU.
- Altogether, the United Kingdom made some progress in implementing
the budgetary recommendations of the 2001 BEPGs. The government
finances revealed a surplus of around 1% of GDP in 2001 and the
recommendations concerning the government balance relating to
financial years 200102 appear to have been fulfilled. While
government investment is growing strongly, as recommended, a 1%
of GDP deficit emerges in 2002/3 and persists in the medium term
in the latest Convergence Programme, also as a result of the use
of a very cautious trend growth assumption.
- Good progress was made in implementing the 2001 labour market
recommendations. The UK Government continued its efforts to tackle
concentrated and longterm unemployment and inactivity through
its range of active labour market measures, which have been reinforced
in some respects, though it remains to be seen whether the overall
strategy is sufficient. A reform of the delivery of sickness and
disability benefits is in progress.
- Some progress was made in implementing the 2001 product market
recommendations. The UK Government has taken or is considering
several measures to raise productivity such as promoting competition
in certain sectors of the economy including retail banking, car
retailing and postal services. However, events over the last year
have caused the UK Government difficulties in implementing its
10year plan for transport in the railways sector.
- Some progress was made in implementing the 2001 capital market
recommendations as the UK Government has already taken on board
or is actively considering the recommendations of the Myners Review
on institutional investment."
The Government's view
20.6 As regards the report generally, the Minister says:
"The Government has been keen to develop the role of
the BEPGs, in particular to make them more measurable, and to
improve their presentation, as part of the overall programme of
EU multilateral surveillance. The Government supports the production
of a Commission report assessing the implementation of the previous
"The Government shares the Commission's overall emphasis
on the need for sustainable non-inflationary growth and high levels
of employment as key objectives. The Government's policies for
achieving these are: sound macroeconomic policies based on well-managed
public finances and low inflation; and structural reform, including
improvements in the workings of goods and services markets, reforms
to improve the functioning of labour markets, including better
job search, improved training and better incentives to work for
the low paid, better regulation and promotion of entrepreneurship."
20.7 As regard the document's assessment for the UK,
the Minister says:
"[The] Commission comments that the UK's macroeconomic
performance 'combined low inflation, sound public finances and
steady growth for a number of years. A platform of stability has
been achieved by recent policies.' The report also notes that
the UK economy grew at close to trend despite worsened international
conditions, and that UK inflation in December was close to the
lowest in the EU.
"The Commission sets out what it judges to be the key challenges
facing the UK, namely: levels of productivity; concentration of
unemployment in certain communities; and the quality of public
"The report notes that the government balance was in surplus
by 1% of GDP in 2001, and that the 2001 UK Convergence Programme
projects the public finances moving into deficit of around 1%
of GDP in the medium term, largely as a result of addressing the
very low level of public sector investment, which is close to
the lowest in the EU. It also notes that the public finance projections
are based on a cautious trend growth assumption of 2¼%. The
report states that the UK's public finances 'appear to be sustainable
given the low, and falling, government debt to GDP ratio'.
"On labour market reforms, the report notes 'The UK has one
of the best performing labour markets in the EU in terms of employment
rates, and unemployment and long-term unemployment are close to
their lowest levels in two decades.' It notes that the Government
is continuing to tackle concentrated and long-term unemployment
and inactivity through a range of active measures.
"On product markets the report notes that the UK is 'open
to international competition ... The economic environment is favourable
to entrepreneurship with low levels of regulation and relatively
low corporate tax rates. State aid is among the lowest in the
EU and liberalisation of the network industries is well advanced'.
The report notes that the UK compares favourably to most other
Member States in terms of IT expenditure, but that it lags behind
the US on this measure, and also on take-up of broadband internet.
However, the report also notes that there are problems of under
investment in public transport.
"On capital markets, the report notes that progress has been
made in implementing the 2001 recommendation to 'further encourage
the role of pension funds in the development of the risk capital
20.8 By providing an assessment of the implementation
of the 2001 Broad Economic Policy Guidelines, the document is
a useful link in the continuing process of monitoring the economic
policies of Member States to ensure consistency with the goals
of the European Communities Treaty.
20.9 Although the document is of sufficient political
importance to warrant a Report to the House, we have no questions
and are content to clear it.