Blair ponders Euro tax

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CONTROVERSIAL plans for a new income tax to fund the EU were put to European leaders yesterday, re-opening the bitter dispute about the way Brussels is funded, write Stephen Castle and Rachel Sylvester.

In a speech to leaders of the 15 member states at the start of a two- day "brainstorming" summit in Austria, Jose Maria Gil-Robles, president of the European Parliament, said that "the best means of binding the public firmly into European integration is to include the public in the Union's financing system ... We should create an own resource for the Union in the form of a direct income tax, independent of nationality."

The scheme provoked a rebuff from British officials, already sensitive about threats to the UK's annual pounds 2.6bn budget rebate, but, it was learned, similar proposals were put to Tony Blair in a confidential Foreign Office briefing paper, from which the Prime Minister's plan for a European defence capability originated.

Elections to the EU Commission were also proposed in the document, which shows the extent to which the Foreign Office is "thinking the unthinkable" towards Europe. The blueprint was drawn up by Robert Cooper, a high-flying diplomat who was until recently posted to the British embassy in Bonn. He argued that a key problem in Europe was the perception that Brussels was too bureaucratic and unaccountable, and recommended that the Government should argue for the European Commission to be democratised by allowing the citizens of Europe to elect representatives. Holding elections for Commissioners, and possibly even a President, would give people a greater sense of connection with Brussels.

The idea, also floated by Charles Grant in a paper published by the left- leaning Centre for European Research, has been gaining popularity in Blairite circles. But according to senior sources, the Prime Minister made clear in a private meeting with Mr Cooper that while he was not opposed in principle, he thought the author was "ahead of his time".