Brown `ready to make deal on savings tax'

GERMANY LAST night predicted that Gordon Brown will compromise over the "withholding" tax on savings, as European finance ministers stepped up their drive against "unfair" tax competition.

The comments, which will cause alarm in the City, were seized upon by the Conservatives, who accused the Chancellor of a "total sell-out".

After a meeting of Europe's finance ministers in Brussels, Germany's Finance Minister Hans Eichel said that the prospects for a deal are good. "If you want to make progress in Europe", said Mr Eichel, "that presupposes a willingness to compromise. My feeling is, in principle, that this willingness to strike a compromise is present in the UK delegation. There is no fundamental opposition."

Mr Brown promised to bring forward a new paper on Britain's approach to the tax at a meeting in June. At the same time the Finnish government, which will shortly take over the presidency of the EU, made it clear that it hopes to reach agreement both on the withholding tax, and on a wider plan to eliminate "unfair" tax breaks by the end of the year.

Although both issues are potential problems for Mr Brown, the withholding tax poses a big threat because of fears that it will destroy the city's lucrative Eurobond market. The plan would impose a flat rate tax - probably 20 per cent - on interest from savings invested in EU countries, even by non-residents.

The Tories demanded an emergency Commons statement by Mr Brown on his "cave-in." William Hague told the London Business School last night: "The Chancellor is now turning EU stealth taxes from a threat into a harsh reality. After all the bluff and bluster, he has raised the white flag of surrender." Francis Maude, the Shadow Chancellor, said Mr Brown had "sold out Britain's interests".

But ministers dismissed the Tory charges. They insisted Mr Brown is in a strong position because the tax plan can only be introduced if all 15 nations agree. And, while Mr Eichel described the new British paper as a "proposal", the Treasury said it would address the problems surrounding the most likely compromise plan: a move to differentiate between the private and institutional investors in the Eurobond market.

"Not only is out position recognised, we are being invited to suggest a solution to the problem, therefore we are succeeding in our objectives", the Chancellor said last night.