EU Initiates Excessive Deficit Procedure For United Kingdom

BY Jason Gorringe, Tax-News.com, London

12 June 2008

The European Commission on Wednesday announced that it had initiated an Excessive Deficit Procedure against the United Kingdom, following the UK authorities' notification, in March 2008, of a planned deficit of 3.2% of GDP in financial year 2008/09, i.e. above the 3% of GDP Treaty reference value.

While the reported on the matter adopted by the EC accepted that the planned deficit remains close to the reference value, it concluded that it cannot be qualified as exceptional within the meaning of the Treaty and the Stability and Growth Pact; nor can it be considered temporary.

"The United Kingdom's budgetary position has deteriorated over the past year and is expected to rise above the 3% of GDP reference value in the financial year ending in March 2009. In line with the Treaty, the Commission has therefore initiated the excessive deficit procedure" explained Joaquín Almunia, Economic and Monetary Affairs Commissioner.

In March 2008, the United Kingdom notified to the Commission a projected general government deficit in 2008/09 of 3.2% of GDP.

The planned figure for 2008/09 provides prima facie evidence of the existence of an excessive deficit in the UK, the EC explained.

This was corroborated by the spring forecasts of the Commission, which projected a slightly higher deficit at 3.3% and, on a no-policy change assumption, also forecast a general government deficit in 2009/10 of 3.3% of GDP.

According to the Stability and Growth Pact, the notification of an excessive deficit requires the Commission to adopt a report under Article 104.3 of the Treaty.

This report should examine the reasons for the breach of the reference value, and in particular look at whether the planned excessive deficit is close to the 3% of GDP reference value, whether it is linked to exceptional circumstances and whether it is temporary.

Having examined the budgetary developments as well as the short- and medium-term economic prospects and policy action taken by the UK government, the Commission concluded that the planned excess of the deficit over the reference value cannot be considered exceptional or temporary, and suggested that the UK is not respecting the deficit criterion set in the Treaty.

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