United Kingdom

VII - Six-Pack

The ‘Six-Pack’ is a package of six legislative measures (five regulations and one directive) improving the Economic governance in the EU. The Commission made the original proposals in September 2010. After negotiations between the Council and the European Parliament, the package was adopted in November 2011 and entered into force on December 13, 2011. Part of the ‘Six-Pack’ measures applies only to the Eurozone member states (see the individual titles below).    
The ‘Six-Pack’ measures reinforce the Stability and Growth Pact (SGP), among others by introducing a new Macroeconomic Imbalances Procedure, new sanctions (for Eurozone member states) and reversed qualified majority voting. Also, there is more attention for the debt-criterion.        
(
http://ec.europa.eu/economy_finance/economic_governance/index_en.htm)

Negotiation
VII.1
What positions did the United Kingdom adopt in the negotiation of the ‘Six-Pack’, in particular in relation to the implications of the ‘Six-Pack’ for (budgetary) sovereignty, constitutional law
, socio-economic fundamental rights, and the budgetary process?

In relation to the six pack negotiations, Sharon Bowles, British MEP, commented “when we were trying to negotiate the pieces of legislation on economic governance, the so-called six pack; we had to battle on for another three months to get the French Government to agree to a change in the voting system so that it was more likely that the Council would make the decision and press the sanctions button.”[1]

The Government originally felt that the draft of Directive 2011/85 did not satisfy the requirements of subsidiarity.[2]

The UK Government also felt that sanctioning should not be automatic. According to Mark Hoban, Financial Secretary to the Treasury, “the Government feels strongly that this process should not become fully automatic, as that could excessively diminish the Council’s role — it should retain a role in launching the excessive deficit procedure and taking major decisions related to the treatment of Member States.”[3]

Directive 2011/85/EU    
Council Directive 2011/85/EU of 8 November 2011 on requirements for budgetary frameworks of the Member States

Implementation       
VII.2
What measures are being taken to implement Directive 2011/85/EU on requirements for budgetary frameworks (required before 31 December 2013, article 15 Directive 2011/85/EU)?

According to article 8 of the Directive, articles 5-7 do not apply to the UK.

The UK considers that it meets the requirements already to have successfully implemented Directive 2011/85/EU.[4] It did not specifically introduce any measures to implement the Directive.

Accounting and statistics

There is a monthly statistical release on Public Sector Finances issued by the Office for National Statistics and Whole of Government Accounts are released yearly.

Forecasts

The Office of Budget Responsibility does this. This was created in 2010 and according to the UK should already perform the role required by EU law.

Budgetary frameworks

The UK follows a forward-looking fiscal mandate to achieve a cyclically adjusted current balance by the end of a rolling, five-year forecast period and achieve a target for public sector net debt to be falling as a percentage of GDP by 2015-16. In order to bring back public finances onto a sustainable path and ensure that it stays within this medium-term framework, the Government sets out four-year spending plans through spending reviews.

The Spending Review 2010 covers the four years from 2011-12 to 2014-15, setting out expenditure ceilings for each government department and that maintaining adherence to the five-year rolling fiscal mandate and the expenditure limits set out in Spending Review 2010 is a central part of the annual budgetary process.

The Office of Budget Responsibility’s remit requires it to provide “an analysis of the sustainability of the public finances at least once each financial year” and that its annual fiscal sustainability report sets out long-term projections for different categories of spending and revenue, analyses the public sector’s balance sheet and reports different indicators of long-term sustainability.

See also the answers to questions II.2 and II.3.

Implementation difficulties       
VII.3
What political/legal difficulties
did the United Kingdom encounter in the implementation process, in particular in relation to implications of the directive for (budgetary) sovereignty, constitutional law and the budgetary process?

Before the directive entered into force, Bill Cash noted on his blog that “Although the UK already complies with some of the proposed provisions, for instances the UK already has independent statistical and fiscal authorities as well as a multiannual budget but, one could wonder if the draft directive respects the UK’s national fiscal competence and the subsidiarity principle. It should be for each Member State to decide their fiscal frameworks however as abovementioned, the Commission is proposing uniform requirements for national fiscal frameworks.”[5]


Macroeconomic and budgetary forecasts     
VII.4
What institution will be responsible for producing macroeconomic and budgetary forecasts (article 4(5) Directive 2011/85/EU)? What institution will conduct an unbiased and comprehensive evaluation of these forecasts (article 4(6) Directive 2011/85/EU)?

The Office of Budget Responsibility does both. See answers to questions II.2 and II.3.

Fiscal Council 
VII.5
Does the United Kingdom have in place an independent Fiscal Council (article 6(1) Directive 2011/85/EU: ‘independent bodies or bodies endowed with functional autonomy vis-à-vis the fiscal authorities of the Member States’)? What are its main characteristics? Does the United Kingdom have to create (or adapt) a Fiscal Council in order to implement Directive 2011/85/EU?

Articles 5-7 of Directive 2011/85/EU do not apply to the UK.

The Office of Budget Responsibility may be considered a Fiscal Council though. See answers to questions II.2 and II.3.

Regulation No 1176/2011 on the prevention and correction of macroeconomic imbalances    
(
http://eur-lex.europa.eu/LexUriServ/LexUriServ.do?uri=CELEX:32011R1176:EN:NOT)

MEIP difficulties     
VII.6
What political/legal difficulties
did the United Kingdom encounter and what debates have arisen, in particular about implications of the regulation for (budgetary) sovereignty, constitutional law, socio-economic fundamental rights, and the budgetary process?

Mark Hoban (Financial Secretary to the Treasury), in commenting on the Commissions first Alert Mechanism Report stressed that the UK is not subject to sanctions of any form.[6]

The Commercial Secretary, Lord Sassoon, noted that the UK is opposed to any new financial transactions tax to fund the budgetary process. The Government considers that it is important for Member States to retain the flexibility to shape their own tax policies to suit their economic circumstances and compete in a global environment.

In relation to high unemployment rates, the Government notes that the Commission encourages it to focus on the employability of young people in its in-depth review. The Government intends to work on this, but to do so taking a broad approach. The Government hopes to end child poverty by 2020 and also improve access to finance for small companies.[7]

The European Scrutiny Committee concludes its consideration of the Commission’s in depth report by noting that while the “UK as a non-eurozone Member State is not as constrained in determining its economic policies as those within the Eurozone, the… consideration of policy opinions is important.”[8]

As for the Alert Mechanism of the new Macroeconomic Imbalances Procedure (article 3 Regulation 1176/2011), the UK is subject to an in-depth review. In 2012 in its analysis of the UK the Commission:[9]

“found that the UK exceeds the threshold values on four indicators in the scoreboard  — Real Effective Exchange Rate, Export Market Share, Private Sector Debt and Public Sector Debt;

“noted, however, that for many of these indicators the trend is towards stabilisation or reduction in potential imbalances

“drew particular attention to the UK’s loss of export market shares;

“noted that, although this trend has stabilised in recent years, the loss of market share has taken place in the context of an increase in the price competitiveness of UK exports;

“considered that the level of private debt in the UK may be a potential source for concern and points to mortgages and high house prices as root causes of the generally high household debt burden; and

“while it recognised that both household debt and real house prices have fallen in recent years, nevertheless considers that they remain high in absolute terms.”

The Government, in response to the Commission’s findings in the 2012 Alert Mechanism Report commented[10]

“the Government’s economic strategy is designed to reduce the deficit, restore stability, equip the UK to succeed in the global race and rebalance the economy;

“this strategy has ensured the public finances are restored to a sustainable path, and the UK is seen as a relative safe haven;

the deficit has been reduced by a quarter over the two years since 2009-10;

“the Office for Budget Responsibility’s most recent forecast shows that it expects the economy to rebalance more slowly, compared to Budget 2012, towards private investment and net trade, consistent with global uncertainty and eurozone recession holding back demand for UK exports and weighing on business and household investment decisions;

“slower growth in private consumption will reduce demand for imports, but by less than the impact of the euro area recession and other factors on UK exports;

“the Government also considers that it will be important for the Commission to take into account the historical context behind the indicators where Member States have exceeded pre-determined thresholds;

“it looks forward to working alongside the Commission as it conducts its IDR; and

“it expects the Commission to clearly present the evidence underpinning its analysis.”

The government has also announced its intention to introduce a number of other policy initiatives directly related to the Commission’s Alert Mechanism Report:

  • In order to alleviate problems within the housing sector, the Government is introducing a range of financial incentives for local authorities to promote house building.
  • through the New Homes Bonus, communities are being offered significant incentives to build new homes[11]
  • The UK is addressing the issue of the employability of young people by:
    •  the Youth Contract;
    • investing in continuing the expansion of apprenticeship programmes which have seen record growth, and in particular encouraging more take-up of apprenticeships by SMEs — the new measures include the new Apprenticeship Grant for Employers, which offers up to 40,000 incentive payments to encourage SME employers to take on 16–24 year olds.
    • encouraging growth in apprenticeships at advanced and higher skills levels, including through the Higher Apprenticeship Fund, which will create over 19,000 new apprenticeship places at Level 4 and above

The 2012 application of the In-depth Review (article 5 Regulation 1176/2011) shows that the UK is considered to have a generally flexible economy. The UK’s labour market performance is assessed as somewhat more resilient than that of the EU as a whole. The main findings of the review are that:[12]

         high levels of household debt accumulated over the past decade are linked to high house prices and that this represents an internal imbalance for the UK economy; and

         the external competitiveness and export position of the UK is worthy of attention, although the potential risks associated with this are less pressing.


Regulation No 1175/2011 on strengthening budgetary surveillance positions 
(
http://eur-lex.europa.eu/LexUriServ/LexUriServ.do?uri=CONSLEG:1997R1466:20111213:EN:PDF)

MTO procedure         
VII.7
What changes to the rules on the budgetary process are made to accommodate the amended Medium-term Budgetary Objective (MTO) Procedure?

It is not clear that any changes have been made in order to meet the MTO Procedure.

European semester 
VII.8
What changes have to be made to the rules and practices on the national budgetary timeline to implement the new rules on a European Semester for economic policy coordination (section 1-A, article 2-a consolidated Regulation 1466/97)?

As the UK’s fiscal year is different from that of the Eurozone and because the Government wishes to respect s5 of the 1972 European Communities Act,[13] the UK in June 2010 secured a provision in the stability and growth pact code of conduct to say that the UK will present a final budget, and not budgetary plans to the EU. In that way the UK budget will already be publicly available and have been presented to Parliament.[14]

At times, the UK Convergence Programme is sent to the EU before its approval by Parliament. For example, in 2011 it was deposited with the EU on 28 April 2011 but only approved by Parliament on a deferred Division on 4 May 2011. Mr Hoban noted that the agreed deadline is 30 April for submission of both Convergence Programmes and National Reform Programmes. In such instances, the Commission is advised that the document must be regarded as a draft until parliamentary scrutiny procedures are completed. This has been established practice in recent years where parliamentary debates on the Government’s economic and budgetary assessment have not taken place at the time of submitting the Convergence Programme to the EU. The UK’s Convergence Programme itself does not require Parliament’s approval, but t must be based upon an assessment of the economic and budgetary position which has been reported to Parliament by the Government for its approval. [15]

MTO difficulties        
VII.9
What political/legal difficulties
did the United Kingdom encounter and what debates have arisen, in particular about implications of the regulation for (budgetary) sovereignty, constitutional law and the budgetary process?

Mark Hoban MP (Financial Secretary to the Treasury) informed the House of Commons European Scrutiny Committee about the Employment and Social Affairs Council on 17th June 2011, the ECOFIN Council on 20th June 2011 and the General Affairs Council on 21st June 2011 when Ministers discussed the Commission’s draft recommendations.[16] He noted that the UK Government maintained a scrutiny reserve throughout these discussions and that changes were made to guard against financial risks and to protect the balance of competences between the EU and the Member States. The Prime Minister also maintained a scrutiny reserve at the European Council on 24th June 2011 when the draft recommendations were given political endorsement by the Heads of the Member States.

No sanctions

The government repeatedly stressed that no sanctions can result from the UK’s failure to follow the Commission’s recommendations. This is due to the UK’s opt-out in Protocol (no 15) to the Treaties.

EU competences

Chris Heaton-Harris raised the question about European competences. He noted that the Commission’s recommendations pertain to matters such as the decentralisation of council tax benefit, spatial planning reform and housing supply policy. He therefore requested to know what the impact of these recommendations would be on the government’s decision-making process. Greg Clark informed him that the Government notes the recommendations, but that they are non-binding. He does note concerns regarding ‘mission creep’ though. Later, Kelvin Hopkins states that he believes “countries in the Eurozone have all but given up their power over their domestic economies.”[17]

UK subordinate to the EU?

This is a key issue since Parliamentary sovereignty is particularly important in the British constitution. Opposition is mostly raised to the fact that Britain is bound to submit a convergence report. Lord Pearson of Rannoch, stated in the House of Lords “the Government have rightly refused the insolent demand by Brussels that they should submit our Budget to Brussels before the House of Commons sees it. They are to be congratulated on that small show of defiance.”[18] Similarly, Ian Davidson MP stated in a House of Commons debate “Will the Minister remind me exactly why we have to produce all this information fur the European Union? I have not read it in enormous detail but it seem; that Parliament is telling teacher or the boss why we have done what has been done. That places the House of Commons very much in the position of being subordinate to the European Union.”[19] And again, Kate Hoey, (Labour MP) asked “Given that the requirement for the Government’s assessment was passed under the Maastricht treaty for which no one in this country voted, and that it must go to a Commission that no one in this country has elected, why does an independent British Parliament have to go through this procedure – this charade – every year?”[20]

William Cash MP noted that now the UK effectively has to comply with the convergence criteria and other criteria that are laid down by the European Union. According to him, this indicates that Britain has been moving inexorably, regrettably and avoidably towards deeper and deeper European integration, with more and more requirements and obligations being imposed on us”.

Respect MTO   
VII.10
How is respect of the Medium-term Budgetary Objective included in the national budgetary framework (section 1A, article 2a consolidated Regulation 1466/97)?

It is not clear, the UK does not (as noted below) seem to have introduced a Medium-term Budgetary Objective, even if it is making similar efforts and so it is difficult to see how such an objective has been explicitly included.

Current MTO 
VII.11
What is the United Kingdom’s current Medium-term Budgetary Objective (section 1A, article 2a consolidated Regulation 1466/97)? When will it be revised?

The UK has not set a specific medium-term budgetary objective, even if it is making efforts along the same lines. This is clearly stated by the Commission in its draft recommendations.

In the Charter for Budget Responsibility however, it is stated that the Treasury’s mandate for fiscal policy for this Parliament, announced in the Budget on 22 June 2010, is to achieve cyclically-adjusted current balance by the end of the rolling, five-year forecast period.

Adoption MTO        
VII.12
By what institution and through what procedure is the United Kingdom’s Medium-term Budgetary Objective adopted and incorporated in the stability programme (Eurozone, article 3(2)(a) consolidated Regulation 1466/97)?           
As there is no specific Medium-term Budgetary Objective for the UK there is no specific institution or procedure.

Regulation No 1177/2011 on the excessive deficit procedure
(
http://eur-lex.europa.eu/LexUriServ/LexUriServ.do?uri=CONSLEG:1997R1467:20111213:EN:PDF)

EDP difficulties          
VII.13
What political/legal difficulties
did the United Kingdom encounter and what debates have arisen, in particular about implications of the regulation for (budgetary) sovereignty, constitutional law and the budgetary process?

There is very little debate regarding this regulation.

Regulation No 1173/2011 on effective enforcement of budgetary surveillance    
(
http://eur-lex.europa.eu/LexUriServ/LexUriServ.do?uri=CELEX:32011R1173:EN:NOT)

Sanctions
VII.14
What political/legal difficulties
did the United Kingdom encounter and what debates have arisen, in particular about implications of the regulation for (budgetary) sovereignty, constitutional law and the budgetary process?

The question is not relevant for the UK as it is not in the Eurozone.

General changes       
VII.15
What further changes have to be made to the rules on the budgetary process in order to comply with the Six-Pack rules?

It’s very difficult to assess the changes that Britain has made in order to comply with the Six-pack. Britain submits data to the EU but due to Protocol (No 15) it does not consider itself, strictly speaking, to need to comply with the EU legislation. There is a clear emphasis in Parliament that all changes are British initiatives that the EU is free to comment on. How true this is, and whether changes are in reality made to be in line with EU requirements remains difficult to assess.

Miscellaneous
VII.16
What other information is relevant with regard to the United Kingdom and the Six-Pack?

No other relevant information.

[1] The Select Committee on the European Union, Economic and Financial Affairs and International Trade (Sub-Committee A), Inquiry on  EURO AREA CRISIS, Evidence Session No. 2. http://www.parliament.uk/documents/lords-committees/eu-sub-com-a/EuroCrisis/cEUA111011ev2.pdf

[2] European Scrutiny Committee, 5th Report, Session 2010–11 http://www.publications.parliament.uk/pa/cm201011/cmselect/cmeuleg/428-v/428v.pdf

[3] European Scrutiny Committee, 5th Report, Session 2010–11 http://www.publications.parliament.uk/pa/cm201011/cmselect/cmeuleg/428-v/428v.pdf

[4] European Scrutiny Committee Twenty-ninth Report of Session 2012-13, Chapter18 http://www.publications.parliament.uk/pa/cm201213/cmselect/cmeuleg/86-xxix/8620.htm

[5] Bill Cash MP, EU Economic Governance proposals will affect the UK, 9 November 2010 http://www.europeanfoundation.org/my_weblog/2010/11/eu-economic-governance-proposals-will-affect-the-uk-1.html

[6] European Scrutiny Committee, 59th Report, Session 2010-2012

[7] House of Commons European Scrutiny Committee, 4th Report of Session 2012-13

[8] House of Commons European Scrutiny Committee, 4th Report of Session 2012-13

[9] Discussed by House of Commons European Scrutiny Committee Report 59th Report of Session 2010-12 http://www.publications.parliament.uk/pa/cm201012/cmselect/cmeuleg/428-liv/428.pdf

[10] European Scrutiny Committee, ‘Twenty-Sixth Report  Documents considered by the Committee on 9 January 2013’, 21 January 2013 http://www.publications.parliament.uk/pa/cm201213/cmselect/cmeuleg/86-xxvi/8606.htm

[11] House of Commons European Scrutiny Committee, 4th Report of Session 2012-13, Documents considered by the Committee on 14 June 2012, http://www.publications.parliament.uk/pa/cm201213/cmselect/cmeuleg/86iv/86iv.pdf 

[12] House of Commons European Scrutiny Committee, 4th Report of Session 2012-13, Documents considered by the Committee on 14 June 2012, http://www.publications.parliament.uk/pa/cm201213/cmselect/cmeuleg/86iv/86iv.pdf 

[13] This states that the UK will only submit fiscal data to the Commission if it has already been presented to Parliament first.

[14] HL Hansard, 3 Feb 2011, Col WS 84

[15] HC Hansard, 23 May 2011 : Column 356W http://www.publications.parliament.uk/pa/cm201011/cmhansrd/cm110523/text/110523w0001.htm

[16] ‘Economic governance: the European Semester’ House of Commons, European Scrutiny Committee, 5 Documents Considered by the Committee on 6 July 2011

[17] ‘Economic Governance: The European Semester and Macroeconomic Imbalances’, House of Commons, European Committee B 17th June 2013.

[18] HL, Hansard 25 April 2012, Col 1844http://www.publications.parliament.uk/pa/ld201212/ldhansrd/text/120425-0002.htm

[19] HC, Hansard 27 Apr2011, Col 290

[20] HC, Hansard, 24 April 2012, Col 855