EU confirms common tax plan

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The European Commission yesterday confirmed that, after monetary union, member states may move towards a common economic policy - which could include a common tax regime across the European Union.

Yves Thibault de Silguy, the Economics Commissioner, is drawing up proposals for deeper integration among member states who join the single currency, a spokesman said. Among the areas Mr de Silguy is examining are harmonisation of direct and indirect taxation, as well as the social security systems in member states.

Asked if a future common European income tax could be ruled out, the spokesman said: "No, I am unable to do so." Variation in the present tax levels between member states creates "unfair competition between tax systems," according to commission officials. The initiative was disclosed after The Independent revealed that France and Germany want EU treaty changes at the Amsterdam summit in June to allow for the future creation of a single tax and social security regime. Both Bonn and Paris yesterday denied that they were tabling separate proposals for joint taxation and social security policies.

However, according to a confidential draft report on "flexible" decision- making, by the secretary-general of the Council of Ministers, Jurgen Trumpf, and shown to The Independent, a core alliance of member states are calling for "flexibility" to be applied to economic policy-making under monetary union. Flexibility is the idea that a group of states can forge ahead of other EU nations, and taxation and social security are specifically mentioned as areas to which it should apply.

The Government was caught completely unprepared by the Independent report, to such an extent that the Foreign Secretary, Malcolm Rifkind, was required to brief the Cabinet on it.

One well-placed government source said he knew nothing of it, but it would be vetoed in any event - which is what the leading Tory Euro-sceptic MP John Redwood demanded in the House during Treasury questions. The Financial Secretary to the Treasury, Michael Jack, told him: "That, I think, is a hypothetical question which you ask, for the very simple and straightforward reason that no such proposal, as you describe, exists."

The Cabinet appeared to be less certain than Mr Jack, and frantic British efforts were ordered to track down the source and strength of what one minister described as the "very unhelpful" plans.

Leading article, page 15

John Redwood, page 17