Brown to reject calls for direct tax to fund EU

The Chancellor, Gordon Brown, will today dismiss calls for a direct tax to fund the European Union when EU finance ministers hold their first talks on the issue.

Belgium, which has taken over the EU's presidency, wants a tax to replace the EU's ramshackle funding formula and is using the first full ministerial meeting it is chairing to promote the idea.

The suggestion has won the support of Germany's Finance Minister, Hans Eichel, and of the president of the European Commission, Romano Prodi.

But at today's meeting, in Brussels, Mr Brown will make it clear that Britain sees no possibility a new tax. The Chancellor will argue that the EU should concentrate on making Europe the world's most competitive economy by 2010.

The EU is financed by a system of national contributions that include a percentage of VAT revenues, customs duties and agricultural levies and a sum based on GNP.

The Belgian Prime Minister, Guy Verhofstadt, recently called for a more clear-cut system, arguing: "Like everyone pays their local and national taxes, you should have a direct financing system for the EU."

And concern about the unpopularity of the EU in the wake of Ireland's rejection of the Nice Treaty has bolstered calls for more accountability. Proponents of the tax argue that, in the UK, only 2p of every pound taken in tax goes to the EU, less than widely supposed.

A direct tax would not increase the amount of money raised to fund the EU but would make European institutions more accountable, they say.

That argument is rejected by Britain and other states, who argue that a tax is unlikely to increase the EU's popularity. Whitehall is anxious to switch the focus and reassure the markets that the EU is serious about reform after its blocking of the GE/Honeywell merger.