Select Committee on European Scrutiny Twenty-Third Report



Commission Report on the implementation of the 2001 Broad Economic Policy Guidelines.
Legal base:
Deposited in Parliament: 12 March 2002
Department:HM Treasury
Basis of consideration: EM of 19 March 2002
Previous Committee Report: None; but see (22389) 8261/01 and (22508) 9326/01: HC 152-ii (2001-02), paragraph 3 (17 October 2001)
To be discussed in Council: June 2002
Committee's assessment:Politically important
Committee's decision:Cleared


  20.1  Broad Economic Policy Guidelines (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 EC Treaty, such as non-inflationary economic growth, respecting the environment, a high level of employment and social protection and a raised standard of living and quality of life. Article 249 EC makes it clear that the recommendations included in the BEPGs are not binding on Member States.

  20.2  Following their approval by the June 2001 Göthenburg European Council, the 2001 BEPGs were adopted by the ECOFIN Council. The BEPGs consisted of general or "horizontal recommendations" and country-specific recommendations. The horizontal recommendations covered eight specific goals: ensure growth and stability­oriented macro-economic policies; improve the quality and sustainability of public finances; invigorate labour markets; ensure efficient product (goods and services) markets; promote the efficiency and integration of the EU financial services market; encourage entrepreneurship; speed up the transition to the knowledge­based economy; and enhance environmental sustainability. In our Report of 17 October 2001,we recommended for debate both the Commission Recommendation and the Council Recommendation for the 2001 BEPGs. The debate was held on 9 January 2002.

The document

  20.3  The report provides an assessment of the degree of implementation of the 2001 BEPGs and prepares the ground for the 2002 BEPGs. It contains a general overview of each of the key policy areas and assessments of the implementation of the recommendations for each Member State.

  20.4  The Economic Secretary to the Treasury (Ruth Kelly) describes the key messages of the report in her Explanatory Memorandum of 18 March:

    "—  Macroeconomic performance worsened under the continuing effects of adverse economic shocks. Job creation slowed, but a small decline in unemployment was achieved.
  • Several Member States are not yet fulfilling the 'close to balance or in surplus' requirement of the Stability and Growth Pact.

  • Although several Member States made progress through reform of pension systems and the creation of reserve funds, some Member States need to take further measures to ensure long-term sustainability of public finances.

  • There has been progress in invigorating labour markets, but reform of tax-benefit systems has been limited. Barriers to geographical mobility still need to be addressed.

  • The functioning of European product markets improved, but improvements are still required in reducing barriers to cross-border trade in services, continuing liberalisation in network industries, and reducing state aids in some Member States.

  • Further progress has been made in improving the functioning of capital markets, but implementation of the Financial Services Action Plan needs new impetus.

  • Many Member States reduced the regulatory burden for SMEs (small-medium enterprises) and for improving their access to finance. However, differences persist between Member States in terms of the start up time and costs for SMEs.

  • Progress continued towards a knowledge-based economy, but the deadline to agree how to deliver the Community patent was missed, and the unbundling of the local loop remains slow.

  • Member States introduced a variety of market-based instruments to contribute to environmental sustainability."

  20.5  As regards the assessment for the UK, the report states:

    "—  While the economy decelerated in 2001, in association with the global slowdown, growth remained respectable above 2% — supported by strong household expenditure. Unemployment fell to around 5% by the end of the year. HICP [harmonised index of consumer prices] inflation, at 1.0% in December, was close to the lowest in the EU.
  • Altogether, the United Kingdom made some progress in implementing the budgetary recommendations of the 2001 BEPGs. The government finances revealed a surplus of around 1% of GDP in 2001 and the recommendations concerning the government balance relating to financial years 2001­02 appear to have been fulfilled. While government investment is growing strongly, as recommended, a 1% of GDP deficit emerges in 2002/3 and persists in the medium term in the latest Convergence Programme, also as a result of the use of a very cautious trend growth assumption.

  • Good progress was made in implementing the 2001 labour market recommendations. The UK Government continued its efforts to tackle concentrated and long­term unemployment and inactivity through its range of active labour market measures, which have been reinforced in some respects, though it remains to be seen whether the overall strategy is sufficient. A reform of the delivery of sickness and disability benefits is in progress.

  • Some progress was made in implementing the 2001 product market recommendations. The UK Government has taken or is considering several measures to raise productivity such as promoting competition in certain sectors of the economy including retail banking, car retailing and postal services. However, events over the last year have caused the UK Government difficulties in implementing its 10­year plan for transport in the railways sector.

  • Some progress was made in implementing the 2001 capital market recommendations as the UK Government has already taken on board or is actively considering the recommendations of the Myners Review on institutional investment."

The Government's view

  20.6  As regards the report generally, the Minister says:

    "The Government has been keen to develop the role of the BEPGs, in particular to make them more measurable, and to improve their presentation, as part of the overall programme of EU multilateral surveillance. The Government supports the production of a Commission report assessing the implementation of the previous year's BEPGs.

    "The Government shares the Commission's overall emphasis on the need for sustainable non-inflationary growth and high levels of employment as key objectives. The Government's policies for achieving these are: sound macroeconomic policies based on well-managed public finances and low inflation; and structural reform, including improvements in the workings of goods and services markets, reforms to improve the functioning of labour markets, including better job search, improved training and better incentives to work for the low paid, better regulation and promotion of entrepreneurship."

  20.7  As regard the document's assessment for the UK, the Minister says:

    "[The] Commission comments that the UK's macroeconomic performance 'combined low inflation, sound public finances and steady growth for a number of years. A platform of stability has been achieved by recent policies.' The report also notes that the UK economy grew at close to trend despite worsened international conditions, and that UK inflation in December was close to the lowest in the EU.

    "The Commission sets out what it judges to be the key challenges facing the UK, namely: levels of productivity; concentration of unemployment in certain communities; and the quality of public transport services.

    "Fiscal Position

    "The report notes that the government balance was in surplus by 1% of GDP in 2001, and that the 2001 UK Convergence Programme projects the public finances moving into deficit of around 1% of GDP in the medium term, largely as a result of addressing the very low level of public sector investment, which is close to the lowest in the EU. It also notes that the public finance projections are based on a cautious trend growth assumption of 2¼%. The report states that the UK's public finances 'appear to be sustainable given the low, and falling, government debt to GDP ratio'.

    "Labour Markets

    "On labour market reforms, the report notes 'The UK has one of the best performing labour markets in the EU in terms of employment rates, and unemployment and long-term unemployment are close to their lowest levels in two decades.' It notes that the Government is continuing to tackle concentrated and long-term unemployment and inactivity through a range of active measures.

    "Product Markets

    "On product markets the report notes that the UK is 'open to international competition ... The economic environment is favourable to entrepreneurship with low levels of regulation and relatively low corporate tax rates. State aid is among the lowest in the EU and liberalisation of the network industries is well advanced'. The report notes that the UK compares favourably to most other Member States in terms of IT expenditure, but that it lags behind the US on this measure, and also on take-up of broadband internet. However, the report also notes that there are problems of under investment in public transport.

    "Capital Markets

    "On capital markets, the report notes that progress has been made in implementing the 2001 recommendation to 'further encourage the role of pension funds in the development of the risk capital market'."


  20.8  By providing an assessment of the implementation of the 2001 Broad Economic Policy Guidelines, the document is a useful link in the continuing process of monitoring the economic policies of Member States to ensure consistency with the goals of the European Communities Treaty.

  20.9  Although the document is of sufficient political importance to warrant a Report to the House, we have no questions and are content to clear it.

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