Fears of higher taxes and more red tape cool companies' enthusiasm for the euro

New survey suggests that the Governemt faces an uphill struggle to win business backing for single currency
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The Independent Online

If the government was hoping the business community could be left to kick-start the campaign in favour of membership of the European single currency, it was seriously mistaken.

First the new broom at the Confederation of British Industry, director general Digby Jones, abolished his organisation's unofficial role as cheerleader for the euro. Now, according to a survey published yesterday by the British Chambers of Commerce, only one in 20 firms believe the UK should sign up immediately to the euro.

Another 33 per cent supported joining in principle, making 38 per cent in favour. But an almost equal number, 36 per cent, would rule out membership - either for the foreseeable future (19 per cent) or forever (17 per cent). Another 24 per cent said the issue should be kept under review.

Its deputy director general, Ian Peters, piled on the misery, blaming growing antipathy towards the Government's business agenda for the fall-away in support.

"Businesses' lukewarm support for the euro appears, at least, in part, to be a reflection of the widespread concern that membership of the single currency will lead to higher taxes and more regulation. They will need to be convinced that there are adequate safeguards to prevent this," he said.

Three-fifths of respondents thought the tax burden would be higher within the eurozone. As the Government's opponents have managed to make huge political capital over the recent admission that the tax burden has risen since Labour won power this is a key outcome from the survey.

Crucially, this survey comes a couple of days after the CBI and BCC went on the record with their growing disenchantment with New Labour. Chris Humphries, BCC director general, said yesterday: "If Government wishes to retain the option of joining the single currency after the next election, it must give serious consideration to how it will promote the benefits to the business community which clearly remains unconvinced."

The details of the survey showed the major factor in favour of membership was interest rate policy. Half of firms said they expected rates to be lower within the eurozone, where they are currently 3.5 per cent, than in the UK (6 per cent).

Arguments over the impact on inward investment were more finely split. Four in 10 said it would make no difference with 35 per cent saying it would increase if we were in and a quarter saying the opposite.

The BCC poll results were seized on by the two main lobby groups on either side of the argument. Business for Sterling said it was a "body blow" to the Government's pro-euro campaign. "Not a single business organisation is now campaigning for Britain to adopt the euro," said Nick Herbert, its chief executive.

Britain in Europe said the poll showed that two-thirds of small firms had rejected the "anti-European view" that Britain should rule out membership of the single currency and endorsed Britain in Europe's view that we should keep open the option to join.

Simon Buckby, its campaign director, said: "Businesses see many potential benefits of joining the single currency - lower interest rates, more exports, more investment, and greater business competitiveness."

The group also focused on the fact that almost half the respondents (49 per cent) had made some preparations in case the UK joined during the forthcoming Parliament. "This is the first time we have seen anything near that figure," said a spokesman. "They have ignored those who have urged business to bury its head in the sand."

The BCC poll is far less enthusiastic than a survey of 1,284 CBI member firms last year that found 52 per cent in favour, 15 per cent against joining, and 31 per cent saying Britain should wait and see before making any decisions. A separate poll of the CBI's committees and members organisations was even more positive with 50 per cent in favour of joining before 2005, a total of 78 per cent in favour of joining and only 2 per cent against joining before 2007 or at all.

Yesterday Kate Barker, its chief economist, said the survey showed small businesses with little export trade did not want to join the euro. "Our surveys show that the majority of CBI members, and particularly those that have international trade, still want to join when the economic conditions are right," she said.

The problem for those who support euro membership is that the economic conditions are looking increasingly unfavourable. The key question is whether the five tests the Chancellor set to decide whether a single currency would be to the UK's advantage - economic convergence, labour market flexibility, investment, financial services and the City of London, and growth, stability and jobs - can be met.

Interest rates in the UK are almost twice those or euroland and while the UK economy is enjoying strong growth, especially in its domestic economy, continental Europe is still climbing out of a depression. Sterling is at an all-time high against the euro and is currently at a level that no industrialist would want to join the single currency.

A Treasury spokeswoman said the five tests would be reviewed in the next Parliament. "We are aware of the concerns which industry have but we are also well aware that it would be worse to meddle with the exchange rate, which could return the economy to boom and bust," she said.

Meanwhile progress on fiscal reform, opening up markets and deregulation of labour appeared to have slowed. According to Stephen Lewis, chief economist at Monument Derivatives, there are growing signs of a rift developing between France and Germany - the leading powers in the eurozone.

They are already at loggerheads over the euro with France wanting a strong euro and Germany happy with the benefits to manufacturing exporters from a weak currency. On top of that the two nations are pursuing different policies on economic management, telecommunications and their stock exchanges. "In the face of this disarray, the UK Government's hesitation over joining the euro is understandable," Mr Lewis said.