Letter: Why we need European single taxes

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Sir: Sarah Helm's report (16 January) that France and Germany favour a common income tax and social security system co-extensive with membership of the proposed single currency, should be welcomed in Britain as the best European news in a long time.

The present Maastricht fiscal convergence criteria and monetary relationships have by themselves a deflationary bias. The economies within the single currency least able to contain the upward creep of costs would suffer the worst employment/inflation trade-offs. These weakest regions would therefore bear the brunt of the costs of adaptation, in terms of unemployment and industrial stagnation.

The most enterprising of the unemployed will migrate from such regions, taking their savings with them. Local capital will similarly migrate, leaving a depressed, impoverished region in its wake.

A similar process occurred in southern Italy after the Risorgimento, and South Wales in the 1930s had a "balance of payments" deficit within the UK, owing to a local concentration of inefficient coal mines. Equilibrium in payment flows was restored by the downward crushing of average household incomes through a regional concentration of enforced redundancies.

An analogous threat was posed for Britain by the Maastricht arrangements as they stood. The plans revealed by Sarah Helm in principle provide a way out. Under a federal fiscal system, a member state suffering a structural balance-of-payments deficit, owing to uncompetitive firms, will experience an inflow of funds for unemployment benefit as workers are made redundant.

If the fiscal federalist plans include a European element in industrial investment incentives, national measures to stimulate revival will no longer be limited by the "national rate-capping" effect of the Maastricht 3 per cent budgetary deficit ceiling. On the contrary, such measures would attract matching supplementary funding from Brussels.

A fiscal federal system in Europe would provide automatic compensating flows of funds to regions or member states suffering deficit or de-industrialisation (the British case), and the European Union economy could thereby achieve real convergence in productivity between its regions.

The danger is that our wretched party political leaderships will not realise the opportunity presented to them by the Franco-German proposals until too late.


Hockley, Essex