Documents considered by the Committee on 22 November 2017 Contents

28EU economic governance: 2017 European Semester: Country-Specific Recommendations

Committee’s assessment

Politically important

Committee’s decision

Cleared from scrutiny

Document details

(a) Commission Communication concerning the 2017 Country Specific Recommendations; (b) Recommendation for a Council Recommendation on the 2017 National Reform Programme of the United Kingdom and delivering a Council opinion on the 2017 Convergence Programme of the United Kingdom

Legal base

(a)—; (b) Articles 121(2) and 148(4) TFEU and Article 9(2) of Council Regulation 1466/97,—, QMV

Department

HM Treasury

Document Numbers

(a) (38758), 9133/17, COM(17) 500; (b) (38755), 9260/17, COM(17) 527

Summary and Committee’s conclusions

28.1In May 2017 the Commission proposed, in the context of the annual European Semester, 2017 Country Specific Recommendations for the UK. It also published a Communication commenting generally on the last stage of the 2017 European Semester cycle, drawing particularly on themes arising from its proposed Country Specific Recommendations for all Member States.

28.2The Government, while merely noting the content of the Communication, has told us that the Country Specific Recommendations for the UK were broadly in line with the Government’s plans and reflected the advice of others, including the OECD. The Government has also explained why it thought it appropriate to support Council adoption of the proposed UK Country Specific Recommendations whilst the document was still under scrutiny.

28.3The previous Committee recommended documents from earlier stages of the 2017 European Semester for debate in European Committee B. Several of the documents should have been debated before the March 2017 European Council. However the Government disregarded that requirement and that debate is not scheduled.

28.4The 2017 cycle of the European Semester was completed by the ECOFIN Council in July 2017 with the adoption of the proposed Country Specific Recommendations. Therefore there is little value in debating these present documents and accordingly we clear them from scrutiny.

28.5We accept the Government’s explanation as to why it thought a breach of the scrutiny reserve resolution was necessary.

Full details of the documents

(a) Commission Communication: 2017 European Semester: Country Specific Recommendations: (38758), 9133/17, COM(17) 500; (b) Recommendation for a Council Recommendation on the 2017 National Reform Programme of the United Kingdom and delivering a Council opinion on the 2017 Convergence Programme of the United Kingdom: (38755), 9260/17, COM(17) 527.

Background

28.6The European Semester, introduced in 2010, is an annual cycle of economic policy coordination. It is an EU-level framework for coordinating and assessing Member States’ structural reforms and fiscal/budgetary policy and for monitoring and addressing macroeconomic imbalances. It attempts to align their reporting cycles for the various programmes, so tying together consideration of National Reform Programmes and Stability and Convergence Programmes.

28.7In 2011 a Macroeconomic Imbalance Procedure was introduced as part of the response to the economic and financial crisis. Its processes are a slightly separate part of the European Semester and it is designed to prevent and correct risky macroeconomic developments, such as high current account deficits, unsustainable external indebtedness and housing bubbles.

28.8In January 2017 the previous Committee recommended the Annual Growth Survey and the Alert Mechanism Report, the first documents for the 2016 European Semester, for debate in European Committee B, together with several other relevant documents. Our predecessors required the debate to take place before the March 2017 European Council, but that requirement was not met by the Government and it has not been scheduled for a debate.357

28.9As a further stage in the 2017 European Semester the Commission published in March 2017 Country Reports for all Member States, except Greece. These reports contained the conclusion of a Member State’s In Depth Review of macroeconomic imbalances, where applicable, and an assessment of progress in addressing the 2016 Country Specific Recommendations (CSRs), agreed by the Council in July 2016, as the final stage of the 2016 European Semester. The Commission also published a Communication summarising the Country Reports and its assessment, where appropriate, of the level of imbalances in each Member State subject to an In Depth Review. The previous Committee recommended that this document, together with the Country Report for the UK, be debated in European Committee B once the proposed CSRs were available for scrutiny.358 Those proposed CSRs for all Member States except Greece were published in May 2017—26 of them are the subject of another chapter in this Report,359 whilst the document concerning the proposed CSRs for the UK is one of the subjects of this chapter.

The documents

28.10For the next stage of the 2017 European Semester process Member States were required to submit their National Reform Programmes and Stability or Convergence Programmes to the Commission by the end of April 2017. On the basis of these reports in May 2017 the Commission proposed CSRs for consideration by the Employment and Social Protection, ECOFIN and European Councils. They were then adopted by the ECOFIN Council in July 2017; they are, however, not legally binding on Member States.

28.11In May 2017 the Commission also published a Communication, document (a), which summarised the major policy issues currently faced by the EU, took stock of progress achieved by Member States in implementing structural reforms and correcting imbalances, explained its objectives for the 2017–18 CSRs, and outlined collective progress towards meeting Europe 2020 Strategy targets for employment, R&D investment, climate, education and social inclusion.

28.12Although the EU was resilient, with both EU and eurozone economies growing by nearly 2% in 2016, and public finances continuing to improve, there was weak underlying productivity. The Commission’s proposed recommendations presented to conclude the 2017 European Semester sought to strengthen positive trends to make EU economies more competitive, resilient, inclusive, and innovative, with recommendations taking into account:

28.13The Commission was concerned that regulatory restrictions in some service sectors and inefficiencies in public procurement markets still hampered the internal market for businesses.

28.14Through their new multiannual assessment the Commission reported that Member States were increasingly making progress in implementing their CSRs, with at least two thirds of those targeted reforms issued until 2016 implemented with ‘some progress’. Greatest progress was seen in the areas of fiscal policy and governance, and significant progress had been made in improving the sustainability of pensions. There was slower progress in health and long term care, broadening the tax base, improving the business environment, access to finance and competition in services. The Communication included graphs showing CSR progress by year from 2011 to 2016, and by policy area for 2016.

28.15The objective of the Commission’s 2017–2018 CSRs was to deliver more jobs, faster growth and social fairness—challenges which varied considerably across Member States. The Commission suggested that those with labour market problems, such as high levels of unemployment, prioritise resilient and inclusive policies. Some countries, such as Germany or the Netherlands, which were at or close to full employment could accelerate real wage increases to improve aggregate consumption and reduce large current account surpluses.

28.16The Commission expressed concerns about the effect of temporary forms of employment hampering productivity and developing human capital, by limiting, for example, access to training. It was keen to improve participation in labour markets by addressing work-life balance, gender employment and pay gaps, and by increasing employment in the older population. There were particular concerns for participation of older workers in Germany, Luxemburg, Croatia, Austria, Poland and Slovenia. It suggested healthcare reforms to support an older working population in countries like Latvia, Austria and Romania.

28.17The Commission was concerned that social protection systems support those in need, but encouraged those who could work to participate in the labour market with reforms that made work pay. It found that Member States with the greatest levels of inequality tended to have higher poverty rates, and suggested that low tax progressivity, combined with poor tax collection and a weak social security net damaged society and economic growth. It proposed a European Pillar of Social Rights, to support further convergence through fair labour markets and welfare systems.

28.18The Commission suggested that skills were essential to sustaining innovation and productivity growth. Recommendations this year included reforms to education, including vocational education and training, tertiary education and life-long learning.

28.19The Commission said that it had presented a comprehensive package to strengthen the resilience of the EU banking sector, and would present a mid-term review of the Capital Markets Union action plan in June 2017. Several Member States still had high levels of non-performing loans, and the Commission was seeking effective insolvency frameworks and, in the eurozone, was calling for an area wide strategy to address current and future risks in this area for the banking sector.

28.20Member States were encouraged to take advantage of favourable macroeconomic conditions to increase public investment, and to facilitate private investment in infrastructure. In particular it wanted to increase public investment in education, research and development, and communications networks that could have an impact on productivity and would continue to use Structural and Investment Funds to encourage private sector investments in Member States.

28.21CSRs for some Member States included those aimingto improve the effectiveness of their justice systems, and to fight corruption in areas such as public procurement, public administration, the business environment and healthcare. Many Member States were making insufficient progress in reforming their product or services markets, including retail services and product distribution—SMEs in particular could benefit from greater competition in professional business services.

28.22The proposed 2017 CSRs for the UK, document (b), were to:

28.23The recommendations are not binding and the UK cannot be subject to sanctions under any part of the semester process—the Government is not obliged to act on the recommendations if they appear to impinge on its flexibility to achieve policy outcomes in a manner that best fits the UK’s national circumstances. For eurozone Member States there are binding elements and a risk of sanctions.

The Government’s view

28.24In her letter of 21 June 2017 the Chief Secretary to the Treasury (Elizabeth Truss), while noting that there would be an Explanatory Memorandum on these documents, explains why the Government would be supporting endorsement of the UK’s CSRs by the European Council on 22–23 June 2017 and their adoption by the ECOFIN Council on 11 July 2017, even though still under parliamentary scrutiny.

28.25The Minister first recalls that, following publication of the Commission’s Country Reports, the Government submitted its 2017 National Reform Programme to the Commission on 21 April 2017 and on 27 April 2017 its 2017 Convergence Programme. She then says that, following the submission by all Member States of these programmes, on 22nd May 2017 the Commission issued a package of documents, including this Communication and the proposed UK CSRs. The Minister briefly summarises these two documents, before telling us that:

28.26The Minister then explains that:

28.27In her Explanatory Memorandum of 26 June 2017 the Minister says of the Commission’s Communication merely that the Government noted it. However she was somewhat more expansive in relation to the proposed UK CSRs, saying that:

Previous Committee Reports

None.


357 (38282)—, (38286) 14357/16, (38287) 14358/16, (38288) 14359/16 + ADD 1, (38289) 14630/16 + ADD 1, (38293) 14364/16, (38320) 14808/16: see Twenty-seventh Report HC 71–xxv (2016–17) chapter 1 and chapter 2 (18 January 2017).

358 (38557) 6619/17, (38558) 6550/17: see Thirty-seventh Report HC 71–xxxv (2016–17), chapter 1 (29 March 2017).

359 (38729) 9229/17, (38730) 9230/17, (38731) 9231/17, (38732) 9232/17, (38733) 9233/17, (38734) 9234/17, (38735) 9235/17, (38736) 9236/17, (38737) 9237/17, (38738) 9238/17, (38739) 9239/17, (38740) 9241/17, (38741) 9243/17, (38742) 9245/17, (38743) 9246/17, (38744) 9247/17, (38745), 9248/17, (38746), 9249/17, (38747), 9250/17, (38748) 9251/17, (38749) 9252/17, (38750) 9254/17, (38751) 9255/17, (38752) 9256/17, (38753) 9257/17, (38754) 9259/17: see First Report HC 301-I (2017-19) chapter 42 (13 November 2017).
Twenty-seventh Report HC 71–xxv (2016–17) chapter 1 and chapter 2 (18 January 2017).




28 November 2017