Jobless in Leipzig, taxed in Liverpool

Let's have an end to fairy stories. Share a currency with other countries, and you share their tax burden, too
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The Independent Online
Abolish the pound, and we would soon end up with common European taxation. When I and others said this a year or two ago we were told that we were alarmist.

We were told that joining a single currency was just like receiving some useful travellers' cheques without having to pay a commission.

Some said that we would still be Britain, and Germany would still be Germany, and that we would just happen to share a currency and an interest rate for the mutual convenience of travellers and businesses.

That was just a fairy story. If you share a currency with another country you have to share many other things as well. Your foreign exchange reserves have to be put into a few secure vans and sent off to the new Central Bank in Frankfurt. They will decide how to spend the money, not us.

If you share a currency, the Union bank decides how much British business and people can borrow and spend - not the Bank of England, or British politicians. If you share a currency, the Union authorities tell the British government how much it can borrow and when it can borrow, because the British government is using the common credit and borrowing at the Union interest rate.

Honest exponents of the single currency would agree so far, but they would say that Britain in a single currency could still decide to spend less and tax less than other countries, or could decide to spend more and tax more.

It is this which France and Germany have challenged this week. Leaving participating countries in charge of their levels of taxation and spending would be no more than a short resting-place before the Union moved on, and demanded control over actual levels of taxation.

Indeed, the Union is already trying to control our tax levels. VAT has to be within a specified band, and placed an a specified range of products across the Union.

Union supporters say that if you are to have a fair single market that works, you must charge the same levels of sales taxes across the union. Now some are saying that it would not be fair for one country in a currency union to undercut another by charging less income and profits taxes than other members.

The Union has already threatened Britain, when the Government said it wanted to abolish capital gains and inheritance taxes, with a Union spokesman saying that because other countries had capital taxes, so should Britain.

The Union itself will want to spend more of the tax revenue we raise. The European Community so far takes pounds 10,000m, or four pence in the pound of our 23p in the pound income tax, for Union purposes. Some two-thirds of this comes back as grants and payments to British farmers and regional projects in Britain; the rest passes to other regions of the community.

There would need to be a huge increase in regional transfer around the union if we were to go ahead with a single currency. We would need to send more subsidies to those parts of the union afflicted by high unemployment, and unable to do anything about it given the common interest rates and exchange rates.

In the British currency union, southern England accepts its responsibilities for Liverpool. Southern English taxpayers pay extra taxes, so that common benefit levels and other cash payments can be made in Liverpool where unemployment has been obstinately high. We do this willingly. Once, Liverpool was a great, enterprising, tax-paying port. It is part of our country. We think it right that there should be common levels of benefit and public services across our union, and that those who can afford to do so should pay for them.

If we were in a currency union with Germany we would have to accept obligations to Leipzig similar to those that we accept to Liverpool. If unemployment remained high in Leipzig, they would expect more regional grants and subsidies. Britain, as one of the richer parts of the union, would have to dig deeper into its pocket to pay the bills. There would be a move to harmonise levels of benefit and service. The Union would say it would be unfair for someone out of work in Leipzig to get less - or more - than someone out of work in Liverpool. After all, both these unemployed people would be casualties of the common economic policy pursued in the name of the Union.

The House of Commons Select Committee has highlighted how pensions have been promised in France and Germany, but no money has been saved to pay for them, whereas in Britain huge savings have been put aside in employer and employee funds.

While the Continentals would not be able to take money directly out of our pension schemes if we were to join the single currency, we would be expected to contribute to the public accounts in the states that had huge liabilities they could not meet. Their liabilities become a matter of common interest, as they would be borrowing to meet their bills in a shared currency at a common interest rate.

They would soon demand some burden-sharing around the union. That is why they have introduced the concept of European citizenship, to make us feel the same responsibility for the lifestyles of nationals of other members' states as we currently feel to citizens in our own country.

Of course, a single currency requires a single economic policy. It would soon lead to demands to harmonise tax levels, benefit levels and public programmes.

It would also soon create a need for a large increase in European public spending, in a desperate effort to even out the rough injustices that the common interest rate forced on the wildly divergent regional and national economics of Western Europe.

France and Germany have done us a service by planning the future in such good time. If you do not want European income tax, then do not surrender the pound, for the one follows the other as night follows day.

The writer is Conservative MP for Wokingham