Britain prepares concessions to halt common tax plan

Britain is preparing to offer key concessions to France and Germany in an attempt to head off moves to bring in common tax policies across the European Union and scrap national vetoes on some decisions.

The trade-off would be made at the convention on the future of Europe, chaired by the former French president Valéry Giscard d'Estaing, which is producing a blueprint for how an expanded, 25-nation EU would work. He will give a progress report to the EU summit in Copenhagen.

Tony Blair will use the summit to put pressure on the convention to back plans for a powerful president of the European Council to drive through the EU's agenda and represent Europe on the world stage. In return, Britain may give ground on other sensitive proposals. It might allow the European Parliament to play a part in choosing the Commission president, a job now occupied by Romano Prodi, and give the Commission a bigger role in foreign and security policy.

Mr Blair has asked Peter Hain, the Welsh Secretary and a member of the convention, to try to water down the Franco-German proposals on tax before the convention concludes its work next summer. The Prime Minister has told the team of British officials working on the convention that its outcome will be "even more important" than a possible war in Iraq.

Mr Blair also believes that a "sensible" blueprint will boost his chances of calling and winning a euro referendum.

One British government source said: "France and Germany want to see more economic integration.

"Tax is emerging as a big problem. There will be a big battle over this."

Paris and Berlin want to bring in measures to harmonise value-added tax and corporation tax to improve the working of the EU's single market.

Gordon Brown, the Chancellor, who has already forestalled EU moves for a withholding tax on savings held by non-residents in EU states, is taking a close interest in the convention's work. "He is making it very clear that tax harmonisation is a total no-go area," one British source said.

Although Britain could veto a proposal by the convention on common taxation when EU leaders draw up a new treaty next year, Mr Blair wants Mr Hain to seek allies and kill off the plan at an early stage.