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EU: Economic and Financial Affairs Council

Volume 692: debated on Monday 4 June 2007

My right honourable friend the Chancellor of the Exchequer (Gordon Brown) has made the following Written Statement.

The Economic and Financial Affairs Council was held on 8 May in Brussels. The UK was represented by the Economic Secretary to the Treasury, Ed Balls. The items discussed were as follows.

Preliminary Draft of the 2008 General Budget

Commissioner Grybauskaite, responsible for financial planning and the budget, gave a presentation on the Commission’s preliminary draft 2008 EC budget. She emphasised that, for the first time, spending on growth and employment policies will represent the highest share of the budget, ahead of agriculture and natural resources. Ministers noted the presentation of the preliminary draft budget.

Financial Markets

Hedge Funds

Ministers adopted conclusions on hedge funds, noting the role that hedge funds play in providing liquidity, helping markets price assets more accurately and driving financial innovation, but also that authorities should continue to remain vigilant with regard to any potential risks. The UK supported the conclusions, highlighting the need to ensure that any actions taken are proportionate, risk-based and properly designed so that they achieve the intended outcomes. The Financial Services Authority is responsible for regulating hedge fund managers in the UK and has put in place a rigorous regulatory framework to mitigate the risks associated with hedge fund activity.

White Paper on Asset Management

Ministers adopted conclusions on the Commission’s White Paper on enhancing the single market framework for investment funds. Commissioner McCreevy, responsible for the internal market and services, welcomed the endorsement by the Council of the Commission’s approach to this issue, as set out in its white paper. The UK supported the conclusions and supports the Commission’s proposals for reform of the UCITS framework.

Ageing and Financial Markets

Ministers adopted conclusions on a Financial Services Committee report on the implications of ageing populations for financial markets. Ministers agreed on the importance for finance Ministers and for the financial services industry of Europe’s ageing population, and commended the FSC report. The UK is focusing on pensions reform and is at the forefront of tackling a number of the issues that the report raises, for instance through the provision of cost-efficient savings products, as with stakeholder pensions, consideration of innovative ideas to encourage take-up, such as automatic enrolment, and the need to strengthen the financial capability of consumers.

Inter-institutional Monitoring Group (IIMG): Second Interim Report Monitoring the Lamfalussy Process

Johnny Akerholm, chair of the Inter-institutional Monitoring Group on the Lamfalussy process, presented the group’s interim report and said that the final report would be completed in October. Substantial progress had been made, and the UK looks forward to the final report.

My right honourable friend the Chancellor of the Exchequer (Gordon Brown) has made the following Written Statement.

The Economic and Financial Affairs Council will be held on 5 June in Luxembourg. The items on the agenda are as follows.

Implementation of the Stability and Growth Pact: Excessive Deficit Procedures

Ministers will be asked to agree conclusions abrogating the excessive deficit procedures on Malta, Germany and Greece. In January 2003, the Council decided that Germany’s deficit of 3.7 per cent of GDP in 2002 was excessive and gave it a deadline of 2004 to correct this. The deadline was subsequently extended to 2005 and then to 2007, as the deficit remained above 3 per cent. In 2006, the deficit fell to 1.7 per cent of GDP.

The EDP was started on Greece in 2004 on the basis of a deficit of 3.2 per cent of GDP in 2003. In January 2005, the Council concluded that no effective action had been taken to correct this and gave Greece notice to bring the excessive deficit to an end by 2006. In 2006, the deficit was 2.6 per cent of GDP.

Malta was deemed to be in excessive deficit in July 2004, following a deficit of 9.7 per cent of GDP in 2003. It was given a deadline of 2006 and last year the deficit declined to 2.6 per cent of GDP.

Convergence Reports by the Commission and the European Central Bank

Ministers will discuss the convergence reports of the Commission and the ECB for Cyprus and Malta, and Commission proposals for the abrogation of their derogations and for a regulation on the introduction of the euro. This would allow both countries to join the euro as planned on 1 January 2008. This will next be discussed by heads of state and government at the European Council on 21 to 22 June.

Quality of Public Finances

This follows up from the discussion at the informal ECOFIN. The Council will receive a report from the Economic Policy Committee on the efficiency and effectiveness of public finances, focusing in particular on the need to improve the measurement of public sector output. The Council is also expected to adopt conclusions on these matters.


Combating Tax Fraud: Ministers will be asked to agree Council conclusions on conventional measures and more radical solutions to combat VAT fraud, including German ideas on the wide reverse charge.

VAT Package: Ministers will discuss a package of measures to modernise the EU VAT regime for the cross-border supply of services.

Common Consolidated Corporate Tax Base: There will be an orientation debate on the CCCTB. The UK does not believe that the competitiveness of the EU would be helped by a harmonised company tax base and remains sceptical about both the principles and the practicalities.

Code of Conduct on Business Taxation: The report of the code group (chaired by the UK’s Paymaster-General, Dawn Primarolo), including a proposed future work programme, will be adopted through conclusions.

Joint Transfer Pricing Forum: The forum is a body of tax officials from the member states and business representatives. It has agreed guidelines on the handling of arrangements relating to the tax treatment of certain cross-border transactions between related businesses.