Tax disputes show nothing has changed in Euroland

THESE ARE heady days to be a British Eurosceptic. The euro is weak. (These days a currency is never merely low or high or - perish the thought - competitive or uncompetitive). The German economy, if not that of France, is still in all sorts of gratifying trouble. The beef war, however wilfully misunderstood, did the xenophobic cause no end of good. The Conservative party has gone some way towards rejuvenating itself by unequivocally identifying opposition to the single currency as the issue on which to fight the next election.

Best of all, Tony Blair is heading, at the Helsinki summit this week, for his worst European row yet, over the plans for an EU-wide tax on savings that the City - and a salivating press - regard as a monstrous, sovereignty- sapping onslaught on London's a financial centre that Thatcher-like obduracy will be needed to resist. It is, surely, high noon.

Well, only up to a point. For while the row on withholding tax is real, the cataclysmic reading of it misunderstands the underlying context in which it will take place. For a start, this is not quite the fundamental clash between nation and superstate that some in Brussels as well as London would like it to be. The City of London may have exaggerated its fears about the proposal, to make its point. But the fears are not baseless.

The UK is being asked to sign up to a proposal that would tax savings deposited in one EU country by residents of another - or, a much overlooked alternative - require the tax authorities in the saver's home country to be informed about the cross-border savings he has made. The idea is to prevent citizens avoiding savings tax in their own country by banking money in another. And while this may sound sensible, the City believes that it could adversely affect London's position as a highly competitive (and European) Eurobond trading centre, with a likely loss of at least some business to - say - New York.

The starting-point of Tony Blair and Gordon Brown, therefore, is not quite as lofty as the Eurosceptics would like it to be. This is rather a pragmatic defence of a domestic interest of a sort utterly familiar to all European leaders; Jacques Chirac's opposition to the proposal for reforming the Common Agricultural Policy at the Berlin summit being only one of a dozen recent examples. If they are Thatcher at all, they are the early-Eighties, hard-bargaining Thatcher of Fontainebleau rather than the temple-rending Thatcher of the second Rome summit in 1990.

To elevate the row into something vastly more momentous is to indulge in a number of fallacies about both Europe, and Britain's relations with it.

The first of these is the underlying assumption that, whether the UK resists it or not, the withholding directive is merely the prelude to a programme of reckless and comprehensive Lafontaine-style tax harmonisation by the superstate madmen of the EU.

Well, for a start this is an old proposal, which arose in the late Eighties from German frustration that the prosperous middle classes were able to park their money in nice high-interest accounts in Luxembourg, where there is banking secrecy, and so avoid paying German savings taxes. Then it was vetoed - by Luxembourg.

It's true, of course, that the Commission would like further harmonisation, for example of indirect taxes - not least because it is a logical extension of the single market to ensure that goods traded across borders all attract sales tax. True, too, that this could in theory lead to imposition of VAT on - say - children's clothes and food - about as electorally neuralgic an idea in Britain as it is possible to imagine.

But whether this - or any of the other manifold poisonous fiscal snakes that Europhobes see emerging from every drain - is really going to happen, is another matter. A pamphlet to be published after the Helsinki summit, by Kitty Ussher of the Centre for European Reform, goes a long way to demystifying the perceived Euro-tax threat. Ms Ussher coolly points to weaknesses in the - then - German finance minister's plans for harmonised rates of corporation tax. She points out, first, that overall tax revenues have been rising in the EU, and that therefore his contention that higher corporation tax is needed to protect public services is invalid; but, second, that the real reason corporation tax is lower in Germany than it might be is the large number of exemptions for various industries - a fact not lost on other EU member states besides the UK. If ever there were to be harmonisation, she argues, it would be much more sensible - and likely - for it to be on what is taxed, rather than on rates. And that would help Britain, where the exemptions are many fewer.

She is also persuasive in arguing that while harmonisation of VAT may well be economically desirable, it is unlikely to happen because of the other governments beside Britain for whom it would be electorally disastrous.

But even if you accept this reasoning - and many don't - isn't the withholding tax conflict still an apocalyptic moment of truth for the Blair Government's approach to the EU? Well not quite as much as it looks. For Blair is certainly being no less communautaire than Chancellor Gerhard Schroder. No one has been more forthright in criticising the UK for holding out against the directive. Yet under pressure - not least from the threat to his support in his reselection as SPD leader this week - the Chancellor denounces the hostile takeover by one European company, Vodafone, of another, Mannesmann. He then cheerfully ploughs pounds 80m of taxpayers' money into the Philipp Holzmann construction group. Step forward another fallacy.

Ah, yes, say the Eurosceptics, but all this just shows once again what a disaster zone euroland is and why we should have nothing to do with it. Except that, as with beef exports to France, it is with the EU authorities that salvation, if there is to be any, lies. First the Holzmann subsidy attracts the attention of the EU competition authorities; then last Friday Wim Duisenberg, President of the European Central Bank, and since Lafontaine's departure the principal foreign devil in Sun demonology, condemns it in ways that cannot fail to be embarrassing for the German Chancellor.

None of this is to suggest that a veto would not mean a setback, or that a compromise would be undesirable. After all, the Government is now preparing hard for a summit on economic and other reforms throughout the EU in Lisbon next year, which it regards as almost as important as the single market.

It will be that much more difficult if there is a bust-up in Helsinki. The EU majority would like Britain to agree at least to the information provisions of the withholding directive. Britain would like the EU to agree to exempt Eurobonds, easily the most desirable of the available outcomes from Blair's point of view. But even without a compromise - and that means a British veto - Helsinki is unlikely to fulfil the expectations of those who would like to see this weekend change Blair's relations with the EU for ever - and so extinguish any possibility of British euro-entry. It matters. But in the end, its not high noon. It's business as usual.

Suggested Topics
Arts and Entertainment
books
Arts and Entertainment
The Doctor and the Dalek meet
tvReview: Doctor Who Into the Dalek more than compensated for last week's nonsensical offering
Arts and Entertainment
Star turns: Montacute House
tv
Arts and Entertainment
Iain reacts to his GBBO disaster

TV
PROMOTED VIDEO
Have you tried new the Independent Digital Edition apps?
Arts and Entertainment
Simon Cowell is less than impressed with the Strictly/X Factor scheduling clash

TV
Arts and Entertainment
Gothic revival: artist Dave McKean’s poster for Terror and Wonder: The Gothic Imagination
Exhibition
Arts and Entertainment
Diana Beard has left the Great British Bake Off 2014

TV
Arts and Entertainment
Lisa Kudrow, Courtney Cox and Jennifer Anniston reunite for a mini Friends sketch on Jimmy Kimmel Live

TV
Arts and Entertainment
TVDessert week was full of the usual dramas as 'bingate' ensued
Arts and Entertainment
Clara and the twelfth Doctor embark on their first adventure together
TVThe regulator received six complaints on Saturday night
Arts and Entertainment
Vinyl demand: a factory making the old-style discs
musicManufacturers are struggling to keep up with the resurgence in vinyl
Arts and Entertainment
David Baddiel concedes his show takes its inspiration from the hit US series 'Modern Family'
comedyNew comedy festival out to show that there’s more to Jewish humour than rabbi jokes
Arts and Entertainment
Puff Daddy: One Direction may actually be able to use the outrage to boost their credibility

music
Arts and Entertainment
Suha Arraf’s film ‘Villa Touma’ (left) is set in Ramallah and all the actresses are Palestinian

film
Arts and Entertainment
Madame Vastra and Jenny Flint kiss in Doctor Who episode 'Deep Breath'

TV
Arts and Entertainment
Steve Carell in the poster for new film 'Foxcatcher'
filmExclusive: First look at comic actor in first major serious role
Arts and Entertainment

TV
Arts and Entertainment
Kingston Road in Stockton is being filmed for the second series of Benefits Street
arts + entsFilming for Channel 4 has begun despite local complaints
Arts and Entertainment
Led Zeppelin

music
Arts and Entertainment
Radio presenter Scott Mills will be hitting the Strictly Come Dancing ballroom
TV
Independent
Travel Shop
the manor
Up to 70% off luxury travel
on city breaks Find out more
santorini
Up to 70% off luxury travel
on chic beach resorts Find out more
sardina foodie
Up to 70% off luxury travel
on country retreats Find out more
Have you tried new the Independent Digital Edition apps?

ES Rentals

    Independent Dating
    and  

    By clicking 'Search' you
    are agreeing to our
    Terms of Use.

    The other Mugabe who is lining up for the Zimbabwean presidency

    The other Mugabe who is lining up for the Zimbabwean presidency

    Wife of President Robert Mugabe appears to have her sights set on succeeding her husband
    The model of a gadget launch: Cultivate an atmosphere of mystery and excitement to sell stuff people didn't realise they needed

    The model for a gadget launch

    Cultivate an atmosphere of mystery and excitement to sell stuff people didn't realise they needed
    Alice Roberts: She's done pretty well, for a boffin without a beard

    She's done pretty well, for a boffin without a beard

    Alice Roberts talks about her new book on evolution - and why her early TV work drew flak from (mostly male) colleagues
    Get well soon, Joan Rivers - an inspiration, whether she likes it or not

    Get well soon, Joan Rivers

    She is awful. But she's also wonderful, not in spite of but because of the fact she's forever saying appalling things, argues Ellen E Jones
    Doctor Who Into the Dalek review: A classic sci-fi adventure with all the spectacle of a blockbuster

    A fresh take on an old foe

    Doctor Who Into the Dalek more than compensated for last week's nonsensical offering
    Fashion walks away from the celebrity runway show

    Fashion walks away from the celebrity runway show

    As the collections start, fashion editor Alexander Fury finds video and the internet are proving more attractive
    Meet the stars of TV's Wolf Hall... and it's not the cast of the Tudor trilogy

    Meet the stars of TV's Wolf Hall...

    ... and it's not the cast of the Tudor trilogy
    Weekend at the Asylum: Europe's biggest steampunk convention heads to Lincoln

    Europe's biggest steampunk convention

    Jake Wallis Simons discovers how Victorian ray guns and the martial art of biscuit dunking are precisely what the 21st century needs
    Don't swallow the tripe – a user's guide to weasel words

    Don't swallow the tripe – a user's guide to weasel words

    Lying is dangerous and unnecessary. A new book explains the strategies needed to avoid it. John Rentoul on the art of 'uncommunication'
    Daddy, who was Richard Attenborough? Was the beloved thespian the last of the cross-generation stars?

    Daddy, who was Richard Attenborough?

    The atomisation of culture means that few of those we regard as stars are universally loved any more, says DJ Taylor
    She's dark, sarcastic, and bashes life in Nowheresville ... so how did Kacey Musgraves become country music's hottest new star?

    Kacey Musgraves: Nashville's hottest new star

    The singer has two Grammys for her first album under her belt and her celebrity fans include Willie Nelson, Ryan Adams and Katy Perry
    American soldier-poet Brian Turner reveals the enduring turmoil that inspired his memoir

    Soldier-poet Brian Turner on his new memoir

    James Kidd meets the prize-winning writer, whose new memoir takes him back to the bloody battles he fought in Iraq
    Aston Villa vs Hull match preview: Villa were not surprised that Ron Vlaar was a World Cup star

    Villa were not surprised that Vlaar was a World Cup star

    Andi Weimann reveals just how good his Dutch teammate really is
    Bill Granger recipes: Our chef ekes out his holiday in Italy with divine, simple salads

    Bill Granger's simple Italian salads

    Our chef presents his own version of Italian dishes, taking in the flavours and produce that inspired him while he was in the country
    The Last Word: Tumbleweed through deserted stands and suites at Wembley

    The Last Word: Tumbleweed through deserted stands and suites at Wembley

    If supporters begin to close bank accounts, switch broadband suppliers or shun satellite sales, their voices will be heard. It’s time for revolution