Image © Sean Gladwell – Fotolia
(BRUSSELS) – The EU Council took the United Kingdom off its list of Member States with excessive deficits Tuesday, confirming that its government deficit had dropped below the EU’s 3 per cent of GDP reference value.
Only two of the EU’s 28 member states remain subject to excessive deficit procedures, continuing an improvement since 2010-11 when, over a 12-month period, procedures were open for 24 Member States.
The UK has been subject to an excessive deficit procedure since July 2008, when the Council called for its deficit to be corrected by the 2009-10 financial year.
With the 2008 economic downturn, as well as stimulus measures adopted in response to the downturn, leading to substantial deterioration in the UK’s budgetary position, the Council in April 2009l extended the deadline for correcting the deficit by four years, to the 2013-14 financial year. In December 2009 it extended it by an additional year, to 2014-15, in the light of unexpected adverse events. The contraction in economic activity in the UK had worsened to 3.3% of GDP, and the projected government deficit for 2009-10 had been revised upwards to 13% of GDP.
In June 2015, the Council granted the UK a further two years to correct its deficit. It recommended headline deficit targets of 4.1% of GDP in 2015-16 and 2.7% of GDP in 2016-17, consistent with improvements in the structural balance of 0.5% and 1.1% of GDP respectively.
Over the period, the Council found twice, in April 2009 and June 2015, that the UK had not taken effective action in response to its recommendations. But as the UK is not in the eurozone, fines could not be imposed.
The Council confirms that the UK has now met the recommended deficit targets. After peaking at 10% of GDP in 2009-10, its nominal general government deficit has followed a steadily declining trend. The deficit fell to 4% of GDP in 2015-16 and 2.3% of GDP in 2016-17, in line with the Council’s June 2015 recommendation. Fiscal consolidation has been largely expenditure-based.
In its autumn 2017 economic forecast, the Commission projects deficits of 2.5% of GDP in 2017-18, 1.8% of GDP in 2018-19 and 1.3% of GDP in 2019-20, on the basis of a no-policy-change assumption. The UK’s deficit is therefore set to remain below the 3% of GDP reference value over the forecast horizon.
The autumn 2017 forecast estimates the UK’s structural balance to have improved by 3.2% of GDP between 2008-09 and 2016-17.
The UK’s general government gross debt ratio has more than doubled since 2008. From 41% of GDP in 2007-08, it increased to 86.8% of GDP in 2016-17, reflecting higher nominal deficits as well as financial sector interventions during this period. But according to the autumn 2017 forecast, the debt-to-GDP ratio is expected to have peaked in 2016-17 and to decrease to 82.9% in 2019-20.
The Council concluded that the UK’s deficit has been corrected and that its July 2008 decision should therefore be abrogated.
2017 decision abrogating the 2008 decision on an excessive deficit in the UK
