Select Committee on European Scrutiny Ninth Report





Economic Policy Committee's "Annual Report on Structural Reforms

Swedish Presidency's "Key issues on the 2001 Broad Economic Policy

Commission Report on the implementation of the 2000 Broad
Economic Policy Guidelines.

Legal base:
Document originated: (a) 6 March 2001
(b) —
(c) 7 March 2001
Deposited in Parliament: 16 March 2001
Department: HM Treasury
Basis of consideration: EMs of 18 March 2001
Previous Committee Report: None; but see (21021) 6631/1/00: HC 23-xxiii (1999-2000), paragraph 29 (5 April 2000)
To be discussed in Council: 23-24 March 2001
Committee's assessment: Politically important
Committee's decision: (All) Cleared


  13.1  The Stockholm European Council (22-22 March 2001) will, amongst other things, consider three reports when drawing up Broad Economic Policy Guidelines for 2001:

    —  the Economic Policy Committee's Annual Report on Structural Reforms 2001;

    —  the Presidency's Key Issues Paper on the 2001 Broad Economic Policy Guidelines;

    —  Commission Report on the implementation of the 2000 Broad Economic Policy Guidelines;

  13.2  The Annual Report on Structural Reforms 2001 is the third such report. It summarises the results of a country by country examination of economic policies through a system of peer reviews.[44] In her Explanatory Memorandum of 18 March 2001 the Economic Secretary to the Treasury (Miss Melanie Johnson) says that:

    "The focus of the examinations is on progress to reform product, capital and labour markets and long term public finances. Drawing on these peer reviews, the report benchmarks progress with reforms across EU countries, highlights examples of what it sees as 'good practice' and assesses the extent to which Member States have implemented the previous year's country specific recommendations contained in the Broad Economic Policy Guidelines (BEPGs)."

  13.3  As regards the UK's performance, the Annual Report states:

    "A number of measures have been taken to tackle the problem of declining R&D as a percentage of GDP and the trend was indeed reversed in 1999. The government launched a programme 'Transport 2000: the 10 Year Plan' which is designed to improve unsatisfactory conditions in some areas of the UK transportation system. A number of efforts to tackle concentrated unemployment and jobless households have been pursued. No measures have been taken yet regarding the stimulation of pension funds' investment. This issue is being examined in the Myners review of institutional investment which will report in early 2001. Overall the UK showed good progress in implementing its country-specific recommendations."

  13.4  The Annual Report also offers key messages for policy makers to consider. The Minister identifies these as:

    "—  ensure effective competition and completing the internal market;

    "—  improve the ability of benefit systems and of labour market regulations and institutions to facilitate high employment.

    "—  improve the quality and efficiency of public regulation, administration and services;

    "—  speed up the transition to a knowledge-based economy."

  13.5  The Stockholm European Council will be the first opportunity for Heads of State or Government to assess the progress towards meeting the goal set at Lisbon (March 2000) of becoming "the most competitive and dynamic knowledge-based economy in the world, capable of sustained economic growth with more and better jobs and greater social cohesion."

Broad Economic Policy Guidelines

  13.6  The second document is a Presidency report, "Key Issues Paper on the 2001 Broad Economic Policy Guidelines", which seeks to identify the 'key issues' that the Presidency would like the Heads of Government at Stockholm to focus upon. The key issues identified in the report are:

    1  preserving economic recovery through a sound macro-economic policy mix;

    2  labour market reforms;

    3  financial markets: efficiency and integration;

    4  product market reform;

    5  the transition to a more dynamic, knowledge-based economy; and

    6  preparing for population ageing.

  13.7  BEPGs form part of an annual process of policy formulation, implementation and surveillance and ensure that Member States' economic policies are consistent with the goals of the Treaty of Rome, such as: non-inflationary economic growth, respecting the environment, high employment and social protection and a raised standard of living and quality of life.

  13.8  The third document is the Commission's "Report on the Implementation of the 2000 Broad Economic Policy Guidelines". This document contains an overall assessment of how the BEPGs have been applied during 2000. The 2000 BEPGs were significant, not least because they were the first to be adopted after the Lisbon European Council and thus reflect the Council's conclusions.

  13.9  The Minister describes the key messages of the implementation report for 2000 as:

    "—  strong economic growth and a sound macroeconomic policy mix have fostered rapid job creation and falling unemployment;

    "—  some improvement has been made in the quality and sustainability of public finances. Progress has been made in making tax systems more efficient and employment-friendly; more progress is required in reforming expenditure; pension reforms are still required in some member states;

    "—  transition to a knowledge-based society is progressing but still lags behind the US;

    "—  the functioning of European product markets has improved but there is still scope for improvements. Most progress has been made in better co-ordination of national policies, increased transposition of Internal Market Directives and reinforced powers competition authorities. Further progress is required particularly in public procurement, state aids, administrative reform and regulatory burden on business;

    "—  progress has been made in improving the functioning of capital markets, but implementation of the Risk Capital Action Plan needs to speed up; and

    "—  there have been considerable improvements in labour markets — including rapid job creation and a large fall in long-term unemployment. There is further scope for reform in labour markets, particularly to encourage greater participation among older workers."

  13.10  As regards economic developments and key policy issues in the UK, the report comments:

    "While the overall economic outlooks positive, a number of challenges remain: (1) a relatively low level of productivity; (2) high concentration of unemployment in certain social categories; and (3) low public investment."

All three reports will be used when formulating BEPGs for 2001.

The Government view

  13.11  As regards the first two reports, the Minister says that neither report contains any binding policy recommendations. The Minister says that:

    "the Government is keen to promote economic reform both in the EU and domestically. It congratulates the Swedish Presidency for their efforts in producing their Key Issues Paper on the 2001 Broad Economic Policy Guidelines. It will provide a good basis for discussions on economic reform at Stockholm. It also welcomes the EPC's Annual Report on Structural Reforms 2001 as a valuable contribution to the economic reform agenda. It was pleased that the EPC recognised the efforts the Government had made in implementing economic reforms, and that it had concluded that the UK had shown 'good progress in implementing its country specific recommendations' contained in the BEPGs."

  13.12  As regards the report into the implementation of BEPGs for 2000, the Minister says:

    "The Government welcomes the BEPGs Implementation report as an important step in placing the BEPGs at the heart of the economic policy coordination process, and in improving their presentation, relevance and effectiveness. The Implementation Report will play an important role in informing the discussions on economic reform at the Special European Council in Stockholm. The Government is keen to promote economic reform both in the EU and domestically. BEPGs recommendations are non-binding, in line with the principle of subsidiarity set out in the Helsinki Report."

  13.13  Commenting on the references to the UK in the implementation report, the Minister adds:

    "With regard to the UK, the Commission assessment of the UK Government's fiscal policy stance concludes that the UK public finances 'look to be sustainable in the long term', and that the Government is 'alive to potential measures that may need to be introduced to alleviate the adverse effect of ageing on the population.'"

  13.14  The report also notes the considerable increase in net government investment arising from Spending Review 2000.

  13.15  On UK product market reforms, the report concludes that the UK is

    "... 'open to international competition and is well advanced in terms of regulatory reform and liberalisation of network industries.' The report also notes the relatively good record on transition to a knowledge-based economy, and progress in stimulating R&D and innovation."

  13.16  On UK capital market reforms, the report concludes that "financial markets in the UK remain the most developed in the EU". The report notes the measures introduced to "improve competition and bring benefits to customers" in the banking sector. It also notes the increased policy attention paid to increasing early stage equity financing.

  13.17  The UK specific recommendations on product and capital markets were to monitor and reinforce measures to tackle declining R&D and low innovation intensity; develop a long-term plan for transport and analyse the reasons which prevent pension funds from investing in venture capital. The report notes that the UK has met the first two, and has made progress on the third.

  13.18  On UK labour market reforms, the report notes that the impressive labour market performance of the UK has continued. The report notes the continued progress in reforming tax and benefit systems to make work pay. It also outlines the measures introduced to tackle the concentration of unemployment within certain regions and households, and the continued progress in tackling long-term unemployment.

  13.19  The UK-specific recommendations on labour markets were to pursue efforts to address the problem of concentrated unemployment in deprived areas and communities and to reinforce the preventative strategy against long-term unemployment. The assessment notes that the UK has implemented these recommendations.


  13.20  The annual report on Structural Reforms 2001 and the annual report on the implementation of Broad Economic Policy Guidelines (BEPGs) 2000 provide a useful assessment of developments across the European Union and in individual Member States. We note the Minister's comment that the Key Issues Paper on the 2001 Broad Economic Policy Guidelines should provide a good basis for discussions on economic reform at Stockholm and her comment that the reports are non-binding.

  13.21  We also note that two documents were published by the Council as late as 12 March, after ECOFIN, which allowed less than ten days for the government department to prepare the Explanatory Memorandum and for us to consider the documents fully before the start of the European Council.

  13.22  We clear all the documents.

44   Peer review is part of the so called "Cardiff" process which ECOFIN launched on 1 May 1998 under the UK Presidency to improve the functioning of the EU's product and capital markets). Back

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