24 Stability and Growth Pact
| (a)
(27236)
5366/06
—
(b)
(27237)
5367/06
—
|
Council Decision on the existence of an excessive deficit in the United Kingdom: Application of Article 104(6) of the Treaty
Council Recommendation to the United Kingdom with a view to bringing an end to the situation of an excessive government deficit: Application of Article 104(7) of the Treaty
|
| Legal base | (a) Article 104 (6) EC; — ; QMV
(b) Article 104 (7) EC; — ; two-thirds of a QMV weighted vote, excluding the Member State concerned
|
| Deposited in Parliament | 28 February 2006
|
| Department | HM Treasury |
| Basis of consideration | EM of 13 March 2006
|
| Previous Committee Report | None
|
| Discussed in Council | Adopted by ECOFIN 24 January 2006
|
| Committee's assessment | Politically important
|
| Committee's decision | Cleared
|
Background
24.1 The Stability and Growth Pact adopted by the Amsterdam European
Council in June 1997 emphasised the obligation of Member States
to avoid excessive government deficits, defined as the ratio of
a planned or actual deficit to gross domestic product (GDP) at
market prices in excess of a "reference value" of 3%.
This obligation does not apply to Member States, including the
UK, whilst they remain outside the eurozone, but they are required
to endeavour to avoid excessive deficits.
24.2 The Pact also endorsed action in cases of an
excessive government deficit — the excessive deficit procedure
provided for in Article 104 EC and the relevant Protocol. This
procedure consists of Commission reports followed by a stepped
series of Council Recommendations. The final two steps do not
apply to non-members of the eurozone, including the UK. Failure
to comply with the final stage of Recommendations allows the Council
to require publication of additional information by the Member
State concerned before issuing bonds and securities, to invite
the European Investment Bank to reconsider its lending policy
for the Member State concerned, to require a non-interest-bearing
deposit from the Member State concerned whilst its deficit remains
uncorrected, or to impose appropriate fines on the Member State
concerned.
The documents
24.3 On 21 September 2005, the Commission formally
adopted, under Article 104(3) EC, a report assessing the UK in
relation to the excessive deficit procedure.[85]
Following the publication of the Commission's Autumn 2005 economic
forecasts and having regard to the opinion of the Economic and
Financial Committee, in accordance with Article 104(4) EC, as
well as the Government's December 2005 Pre-Budget Report (PBR),
the Commission came forward with a draft Decision and a draft
Recommendation on how to take forward the excessive deficit procedure
for the UK.
24.4 On the basis of those drafts the ECOFIN Council,
on 24 January 2006, adopted a Decision under Article 104(6) EC
that an excessive deficit exists in the UK, document (a). The
Council then adopted a Recommendation under Article 104(7) EC,
document (b), that the excess over the reference value of 3% of
GDP be corrected in a credible and sustainable manner by 2006-07
with, to this end, an improvement in the cyclically-adjusted deficit
of 0.5% of GDP between 2005-06 and 2006-07. The Council established
a deadline of 24 July 2006 for the Government to take effective
action to this end. The Council also asked the Government to ensure
that, after the excessive deficit has been corrected, budgetary
consolidation would be sustained towards a medium-term budgetary
objective which provides a safety margin with respect to the 3%
of GDP deficit limit and maintains prudent debt ratios, taking
into account the economic and budgetary impact of ageing populations,
but allowing room for budgetary manoeuvre, in particular considering
the need for public investment.
The Government's view
24.5 The Economic Secretary to the Treasury (Mr Ivan
Lewis) says, in familiar words, that the Government believes in
a prudent interpretation of the Stability and Growth Pact, which
takes into account the economic cycle, the long-term sustainability
of public finances and the important role of public investment.
He then asserts that the projections set out in the PBR in December
2005 are fully consistent with such a prudent interpretation.
He says the PBR projections for the public finances show the Government
is meeting strict fiscal rules and delivering sustained macroeconomic
stability. He adds that the Government's projections are already
consistent with the Council's Recommendation. In particular, UK
net debt is forecast to stabilise at around 38% and general government
gross debt at around 44% of GDP — well below the threshold
of 60% of GDP, and the UK deficit is forecast to fall below the
3% of GDP threshold to 2.7% in 2006-07.
Conclusion
24.6 These documents give a Community perspective
of Government policy in relation to the Growth and Stability Pact.
We have no questions to ask and clear the documents.
85 See http://europa.eu.int/comm/economy_finance/about/activities/sgp/edp/com_rep_uk.pdf. Back
|
