As so often, Britain's awareness of what is at stake is dimmed by its island location. Cross-border trade is not a big issue for the United Kingdom, with only one external border: between Northern Ireland and the Republic of Ireland. But it bulks large on the Continent, where VAT rates vary widely on certain goods between, for example, Belgium and Luxembourg. With the removal of border checks for all vehicles across the EC, the risk arose of heavy cross-border shopping to cash in on these differences. The effect of market forces would have been to force down VAT rates. The result would probably have been competitive reductions, resulting in shrinking tax revenues for all concerned.
Some member states were worried enough about that prospect to threaten to block further progress towards the single market if nothing were done to safeguard against it. Hence the concept of a minimum rate, itself a considerable improvement - from the British point of view - on harmonised rates. Up to June, the British argued that a legally binding minimum was unnecessary: a simple promise not to cut rates below an agreed level would suffice. That may have been a pre-emptive cringe towards Tory Euro-sceptics. It may, more charitably seen, have been a legitimate negotiating tactic to secure a favourable deal for whisky exports.
For whichever reason, a tactical retreat was duly beaten on Monday, and the principle of a binding minimum agreed - if only for four years. The effect of the complex deal on excise duties for spirits is that in those southern countries where levies are low, they will not have to be harmonised upwards, thus preserving a growth market for Scotch.
One of the realities on which today's EC is based is that in the late 20th century, nation states have little real sovereignty over economic matters unless they choose to exercise it together. Self-interest demands that sovereignty be pooled, even on some fiscal matters. Norman Lamont's deal in Brussels will have no effect on VAT rates in this country. It is, of course, the principle about which the Euro-sceptics are exercised. But in politics, if not in morality, a principle that has no practical effect is little more than a curiosity. What truly matters to Britain is its economic well- being and its place in the world. Those can only be assured within the EC. The single market is potentially a giant step forward for Europe and for Britain. That is the context in which the VAT deal should be seen; and that is the message the Government should be forcefully propagating.Reuse content