European Council issues new recommendation on UK excessive deficit procedure

19 June 2015

The United Kingdom has missed a deadline set for reducing its deficit below 3% of GDP. The Council has issued a new recommendation on corrective measures to be taken, which extends by two years the deadline set for the UK to reduce its deficit.

On 19 June 2015, the Council confirmed that the United Kingdom had missed a deadline set for reducing its deficit below 3% of GDP, the EU's reference value for government deficits. 

The Council found that action taken by the UK in response to a recommendation it issued in December 2009 had proved to be insufficient. It therefore issued a new recommendation under the excessive deficit procedure on corrective measures to be taken. 

In doing so, the Council extended by two years, to the 2016-17 financial year, the deadline set for the UK to reduce its deficit below 3% of GDP. (UK financial years run from 1 April to 1 April.)

A declining deficit 

The Council found that, despite a fiscal consolidation programme implemented since 2010, the UK had not corrected its deficit by the required 2014-15 deadline. After peaking in 2009-10, the nominal budget deficit fell to 7.7% of GDP in 2011‑12, then to 7.6% in 2012-13, 5.9% in 2013-14 and 5.2% in 2014-15. 

Since 2009-10, the UK's general government gross debt has remained continuously above 60% of GDP, the EU's reference value for government debt. The Commission's 2015 spring forecast projects the debt-to-GDP ratio to further increase marginally, though financial sector interventions could have a positive effect. 

Two-year extension 

The Council found that granting the UK one additional year to correct its deficit, which is the general rule under the excessive deficit procedure, would be overly demanding. It would require an adjustment in the headline deficit of 2.2% of GDP, and implementation of additional measures within a tight timetable. This would have a significantly negative impact on economic growth. 

The Council therefore opted for two years, recommending headline deficit targets of 4.1% of GDP in 2015-16 and 2.7% of GDP in 2016-17. These should be consistent with an improvement in the structural balance of 0.5% of GDP in 2015-16 and 1.1% in 2016-17. The Council set a deadline of 15 October 2015 for taking effective action. 

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As the UK is not a member of the euro area, it cannot face sanctions under the excessive deficit procedure.

Full press release


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