Decision 2006/125 - 2006/125/EC: Council Decision of 24 January 2006 on the existence of an excessive deficit in the United Kingdom - Main contents

EN

Official Journal of the European Union

L 51/14

Article 104 of the Treaty lays down an excessive deficit procedure (EDP) to ensure that Member States avoid excessive government deficits or that they correct such deficits when they occur.

Pursuant to point 5 of the Protocol on certain provisions relating to the United Kingdom of Great Britain and Northern Ireland, the obligation under Article 104(1) of the Treaty to avoid excessive general government deficits does not apply to the United Kingdom unless it moves to the third stage of economic and monetary union. While in the second stage, the United Kingdom is required to endeavour to avoid excessive government deficits, pursuant to Article 116(4) of the Treaty.

The Stability and Growth Pact is based on the objective of sound government finances as a means of strengthening the conditions for price stability and for strong sustainable growth conducive to employment creation.

The excessive deficit procedure under Article 104 of the Treaty, as clarified by Council Regulation (EC) No 1467/97 of 7 July 1997 on speeding up and clarifying the implementation of the excessive deficit procedure (1), which is part of the Stability and Growth Pact, provides for a decision on the existence of an excessive deficit. The Protocol on the excessive deficit procedure annexed to the Treaty sets out further provisions relating to the implementation of the excessive deficit procedure. Council Regulation (EC) No 3605/93 (2) lays down detailed rules and definitions for the application of the provision of the said Protocol.

Article 104(5) of the Treaty requires the Commission to address an opinion to the Council if the Commission considers that an excessive deficit in a Member State exists or may occur. Having taken into account its report in accordance with Article 104(3) of the Treaty and having regard to the opinion of the Economic and Financial Committee in accordance with Article 104(4), the Commission services’ autumn 2005 forecast, as well as the United Kingdom’s December 2005 Pre-Budget Report, the Commission concluded that an excessive deficit exists in the United Kingdom. The Commission therefore addressed such an opinion to the Council in respect of the United Kingdom on 11 January 2006.

Article 104(6) of the Treaty states that the Council should consider any observations which the Member State concerned may wish to make before deciding, after an overall assessment, whether an excessive deficit exists. In the case of the United Kingdom, this overall assessment leads to the following conclusions.

In the period since the United Kingdom’s previous excessive deficit procedure was abrogated in May 1998, the UK general government balance moved from a comfortable surplus position in the late 1990s to a deficit of 3,2 % of GDP in 2003/04 (3). This development was equivalent to a change in the structural fiscal balance of around 4 percentage points of GDP in the period between 1999/2000 and 2003/04. During these years, the general government expenditure ratio increased from less than 40 % to about 43 % of GDP. In the same period, government gross fixed capital formation increased from 1,2 % to 1,6 % of GDP; the government gross debt ratio went down to 37,6 % of GDP in 2002/03 but has been increasing since then. Such an evolution, coupled with developments in interest rates...