Commentary: Lamont plays to the Brussels rules

The Government is learning the Brussels game. The spate of decisions completing much of the single European market in financial services is good news for the City. There are even signs of common sense breaking out in the long-standing haggle over minimum EC rates of indirect tax.

At first the row between Britain and the rest over VAT is like one of those disputes among medieval theologians. Nothing would actually have forced Britain to change the way it raises VAT. The standard rate of 17 1/2 per cent would remain, and so would the right to retain politically sensitive zero rates.

All Britain's partners wanted was to make it illegal for an EC country to cut its standard rate below 15 per cent. The sensible reason for this proposal is simply fear of 'fiscal dumping', in which countries in a borderless Europe would try to attract customers from their neighbours by charging less VAT. The result would be plunging state revenues and soaring deficits. The new minimum rate also helps EC member states to do what many of them need to do anyway, which is to raise more tax.

Happily, the Chancellor, Norman Lamont, has climbed down from what always appeared a quixotic position, namely that any minimum tax rate was an

unwonted interference in the sovereign rights of nation states. Forced to choose between a duff issue of principle and practical questions such as the discriminatory treatment of whisky, a subject close to any Scots Chancellor's heart, he went for the expedient deal. Although nothing was finally agreed, there should be a deal on 13 July.

Mr Lamont has made real progress elsewhere. Drafts of the capital adequacy directive, which sets minimum capital requirements for investment firms, had seriously threatened many of London's independent stockbrokers, who would have been at a disadvantage compared with the Continental style of bank-owned firms. But the version that has been agreed, setting the minimum at ecu50,000 for firms that do not hold clients' money, is reasonable.

There was also relief in the City yesterday about the investment services directive, which once looked as if it could kill off London's huge foreign exchange and Eurobond markets. The disclosure requirements had threatened to alert a market-maker's rivals whenever it took a

large position in a stock, but they are now acceptable to the professionals.

Only the insurance directive failed to create enthusiasm, mainly because there is a great difference between passing laws and changing cultures. It will be years before UK insurers crack the Continental market - but, given their recent track record, that may be no bad thing.