Letter: Which Europe?

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Sir: John Rentoul's article on EU tax harmonisation (28 November) was a useful antidote to some of last week's more extreme attempts to concoct a "hidden agenda" of EU tax rises. But it could usefully have added two points made clear by Commissioner Mario Monti, responsible for all proposals on EU tax matters.

First, far from being the standard-bearers of high tax, the Commission has consistently argued that EU governments should cut the proportion of GDP taken in tax. Fair tax competition benefits the European economy by making it more competitive. If goals can be met without taxes, so much the better. So the aim of reducing tax evasion on savings could be met either through a co-ordinated withholding tax, or by exchange of information. The current proposal leaves it to national governments to choose which option they prefer.

Second, the limits of the current debate should be clear. Any suggestion of a common EU income tax is ludicrous. Common action on VAT dates back to 1977, so another look at VAT within the Single Market makes sense, but there should always be some flexibility for EU governments to apply reduced rates to certain goods. Co-ordination to tackle tax evasion and tax breaks acting as hidden state aids means there would be even less reason to look at common rates of corporation tax.

It is quite natural for the 11 EU countries who will be using the euro in one month's time to be thinking hard about how to maximise the effectiveness of a newly strengthened Single Market. The UK government clearly understands this, as shown by Dawn Primarolo's active chairmanship of the current group on the code of conduct on unfair tax competition. This understanding is not shared by much of the UK media, determined to see this through the prism of the domestic debate on whether or not to join the euro. But their attempts to score points by caricaturing the current debate are unlikely to register much interest in the countries concerned with the serious business of making the euro a success.

GEOFFREY MARTIN

Head of Representations in the United Kingdom

The European Commission

London SW1

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