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
Chloe-Jasmine Whicello impressed the judges and the audience at Wembley Arena with a sultry performance
TVReview: Who'd have known Simon was such a Roger Rabbit fan?
News
Rumer was diagnosed with bipolarity, attention deficit hyperactivity disorder and post-traumatic stress disorder: 'I was convinced it was a misdiagnosis'
peopleHer debut album caused her post-traumatic stress - how will she cope as she releases her third record?
Arts and Entertainment
Nick Frost will star in the Doctor Who 2014 Christmas special

TV
Arts and Entertainment
Friends is celebrating its 20th anniversary this year
TV
Arts and Entertainment
A spell in the sun: Emma Stone and Colin Firth star in ‘Magic in the Moonlight’
filmReview: Magic In The Moonlight
PROMOTED VIDEO
Have you tried new the Independent Digital Edition apps?
Arts and Entertainment
Maisie Williams plays 'bad ass' Arya Stark in Game of Thrones

TV
Arts and Entertainment
Liam Neeson said he wouldn't

TV
Arts and Entertainment

TV
Arts and Entertainment
Meera Syal was a member of the team that created Goodness Gracious Me

TV
Arts and Entertainment
The former Doctor Who actor is to play a vicar is search of a wife

film
Arts and Entertainment

music
Arts and Entertainment
Pointless host Alexander Armstrong will voice Danger Mouse on CBBC

TV
Arts and Entertainment
Pharrell dismissed the controversy surrounding

music
Arts and Entertainment
Jack Huston is the new Ben-Hur

film
Arts and Entertainment

TV
Arts and Entertainment
Cara Delevingne modelling

film
Arts and Entertainment
Emma Thompson and Bryn Terfel are bringing Sweeney Todd: The Demon Barber of Fleet Street to the London Coliseum

theatre
Arts and Entertainment
Sheridan Smith as Cilla Black

TV
Arts and Entertainment
Robin Thicke's video for 'Blurred Lines' has been criticised for condoning rape

Robin Thicke admits he didn't write 'Blurred Lines'

music
Arts and Entertainment
While many films were released, few managed to match the success of James Bond blockbuster 'Skyfall'

film
Arts and Entertainment
Matt Damon as Jason Bourne in The Bourne Ultimatum (2007)

film
Arts and Entertainment
Sheridan Smith as Cilla Black

Review: Cilla, ITV TV
Arts and Entertainment

TV
Arts and Entertainment
Tom Hardy stars with Cillian Murphy in Peaky Blinders II

TV
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.

    A roller-coaster tale from the 'voice of a generation'

    Not That Kind of Girl:

    A roller-coaster tale from 'voice of a generation' Lena Dunham
    London is not bedlam or a cradle of vice. In fact it, as much as anywhere, deserves independence

    London is not bedlam or a cradle of vice

    In fact it, as much as anywhere, deserves independence
    Vivienne Westwood 'didn’t want' relationship with Malcolm McLaren

    Vivienne Westwood 'didn’t want' relationship with McLaren

    Designer 'felt pressured' into going out with Sex Pistols manager
    Jourdan Dunn: Model mother

    Model mother

    Jordan Dunn became one of the best-paid models in the world
    Apple still coolest brand – despite U2 PR disaster

    Apple still the coolest brand

    Despite PR disaster of free U2 album
    Scottish referendum: The Yes vote was the love that dared speak its name, but it was not to be

    Despite the result, this is the end of the status quo

    Boyd Tonkin on the fall-out from the Scottish referendum
    Manolo Blahnik: The high priest of heels talks flats, Englishness, and why he loves Mary Beard

    Manolo Blahnik: Flats, Englishness, and Mary Beard

    The shoe designer who has been dubbed 'the patron saint of the stiletto'
    The Beatles biographer reveals exclusive original manuscripts of some of the best pop songs ever written

    Scrambled eggs and LSD

    Behind The Beatles' lyrics - thanks to Hunter Davis's original manuscript copies
    'Normcore' fashion: Blending in is the new standing out in latest catwalk non-trend

    'Normcore': Blending in is the new standing out

    Just when fashion was in grave danger of running out of trends, it only went and invented the non-trend. Rebecca Gonsalves investigates
    Dance’s new leading ladies fight back: How female vocalists are now writing their own hits

    New leading ladies of dance fight back

    How female vocalists are now writing their own hits
    Mystery of the Ground Zero wedding photo

    A shot in the dark

    Mystery of the wedding photo from Ground Zero
    His life, the universe and everything

    His life, the universe and everything

    New biography sheds light on comic genius of Douglas Adams
    Save us from small screen superheroes

    Save us from small screen superheroes

    Shows like Agents of S.H.I.E.L.D are little more than marketing tools
    Reach for the skies

    Reach for the skies

    From pools to football pitches, rooftop living is looking up
    These are the 12 best hotel spas in the UK

    12 best hotel spas in the UK

    Some hotels go all out on facilities; others stand out for the sheer quality of treatments