Cook accused of duty-free 'hypocrisy'

ROBIN COOK, the Foreign Secretary, was accused of hypocrisy yesterday for advocating the cause of duty-free shopping. The argument raged as Germany pressed its demands for cuts to Britain's European Union budget rebate on grounds of fairness.

Mr Cook yesterday asked European colleagues to consider postponing the June 1999 abolition date for duty free on the basis of the effects on jobs and the likely subsequent increase in airline and ferry fares.

But he was immediately rebuffed by an angry senior European commissioner who accused Britain of double standards. Mario Monti said it was odd that Britain wanted to overturn a unanimous 1991 decision to scrap duty free, when the British government was invoking the principle of unanimity to veto any further EU tax harmonisation.

Mr Monti said finance ministers had unanimously agreed to scrap duty free. He reminded them of the Government's strong adherence to the principle of unanimity on tax and said it would also take a unanimous decision to overturn the 1991 agreement. The commission's view is that duty free will become redundant as differences in excise tax are ironed out.

But Mr Cook warned that pressing on with abolition would be unpopular and would damage the British public perception of Europe. "This is a very important issue for the British public," he said.

Accusing some governments of bowing to pressure from lobbyists, Mr Monti said the EU would lose credibility if it succumbed to pressure from a highly subsidised industry which had been given seven years to prepare for abolition. "This will be the last Christmas when many hundreds of millions of Europeans unknowingly pay part of their taxes to subsidise duty-free outlets," he said.

Germany's new Chancellor, Gerhard Schroder - who comes from a constituency that benefits from North Sea ferry links - has emerged as the most powerful supporter of duty free. The first inkling that Britain was considering a late U-turn came last week when Gordon Brown, the Chancellor, indicated support for German calls for a delay in abolition at the same time as threatening to veto any further EU tax harmonisation. Then Tony Blair announced, after an Anglo-French summit on Friday, that he would seek a reprieve for duty free at the Vienna summit of EU heads of government later this week.

Germany, meanwhile, has increased pressure on Britain, demanding cuts to the British budget rebate. Bonn released figures yesterday suggesting Germany would save around pounds 700m a year if the rebate were abolished. As foreign ministers met in Brussels, Gunther Verheugen, Germany's minister for Europe, said all funding issues, including the pounds 2bn annual British rebate, should be on the table.

Germany is the EU's biggest net contributor and pays around 20bn marks (pounds 7.17bn) more per year than it gets back in subsidies. Britain is also a net contributor, losing out about pounds 2.5-pounds 3bn a year.

The rebate was negotiated in 1984 when Britain was one of the poorest countries, yet one of the three biggest net contributors. Four countries - Germany, Austria, the Netherlands and Sweden - now say they are worse off than Britain was in 1984.