(1)

According to Article 126 of the Treaty on the Functioning of the European Union (TFEU) Member States are to avoid excessive government deficits.

(2)

Pursuant to paragraph 4 of the Protocol (No 15) on certain provisions relating to the United Kingdom of Great Britain and Northern Ireland annexed to the Treaty on European Union and to the TFEU, the obligation in Article 126(1) of the TFEU to avoid excessive general government deficits does not apply to the UK unless it adopts the euro. Paragraph 5 of that Protocol provides that the UK is to endeavour to avoid an excessive government deficit.

(3)

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 Stability and Growth Pact includes Council Regulation (EC) No 1467/97 (1), which was adopted in order to further the prompt correction of excessive general government deficits.

(4)

On 8 July 2008 the Council decided, in accordance with Article 104(6) of the Treaty establishing the European Community (TEC), that an excessive deficit existed in the UK (2) and issued a recommendation to the country to endeavour to correct the excessive deficit by financial year 2009-2010 at the latest, in accordance with Article 104(7) of the TEC and Article 3 of Regulation (EC) No 1467/97. The Council set a deadline of 8 January 2009 for effective action to be taken (3).

(5)

In accordance with Article 104(8) of the TEC, the Council decided, on 27 April 2009, that the UK had not taken effective action in response to the Council recommendation of 8 July 2008 (4).

(6)

Recognising that the United Kingdom's budgetary position in 2009-2010 resulted from the implementation of measures amounting to around 1,5 % of GDP, which were an appropriate response to the European Economic Recovery Plan, and the free play of automatic stabilisers, on 2 December 2009, the Council issued a revised recommendation under Article 126(7) of the TFEU recommending that the UK put an end to the excessive deficit situation by 2014-2015. Specifically, in order to bring the general government deficit below 3 % of GDP in a credible and sustainable manner, the UK was recommended to: (a) implement the fiscal measures in 2009-2010 as planned in the 2009 Budget, avoiding further measures contributing to the deterioration of public finances, and start consolidation in 2010-2011 in order to bring the deficit below the reference value by 2014-2015; (b) ensure an average annual fiscal effort of 1,75 % of GDP between 2010-2011 and 2014-2015, which should also contribute to bringing the government gross debt ratio back on a declining path that approaches the reference value at a satisfactory pace by restoring an adequate level of the primary surplus; (c) further specify the additional measures that are necessary to achieve the correction of the excessive deficit by 2014-2015, cyclical conditions permitting, and accelerate the reduction of the deficit if economic or budgetary conditions turn out better than currently expected. In its recommendation of 2 December 2009 the Council established a deadline of 2 June 2010 for effective action to be taken in line with the Article 3(4) of Regulation (EC) No 1467/97.

(7)

On 6 July 2010, the Commission concluded that based on the Commission's 2010 spring forecast, the UK had taken effective action in compliance with the Council recommendation of 2 December 2009 and considered that no additional step in the excessive deficit procedure was therefore necessary at that point in time.

(8)

A new assessment of the action taken by the UK to correct the excessive deficit by 2014-2015 in response to the Council Recommendation under Article 126(7) of the TFEU of 2 December 2009, leads to the following conclusions:

—

The average structural effort amounted to 0,7 % of GDP between 2010-2011 and 2014-2015. When adjusted for the impact of revisions in potential output growth between the current forecast and that underlying the Council recommendation of 2 December 2009, as well as for the impact of revenue developments as compared to standard elasticities to GDP growth, the average annual adjusted structural effort over the period is estimated at 1,1 % of GDP, below the 1  % annual average fiscal effort recommended by the Council.

(9)