Letter: BSE: Europe should share the burden of compensation

Sir: Should the slaughtering of some cattle prove essential, the key question will be how to minimise and split the burden of compensation.

UK farmers will hope to be paid at EU intervention prices, at the same level paid for non-UK, disease-free beef. This should be resisted. Fair compensation should be linked to the lower market prices for British beef prevailing after last week's bad news.

The case for some contribution from the EU is compelling. The Common Agricultural Policy pitches prices high, at levels where supply normally outstrips demand. The excess supply that results is bought into intervention, then dumped elsewhere at much lower prices. The ensuing losses have exceeded pounds 20bn in many recent years, about a third of it attributable to beef and dairy products.

If Britain must now destroy some of her cattle, the EU will reap big savings. Continental surplus production will be sold here at well-above- dump prices. The UK government should press vigorously for an EU transfer at least equal to the value of these savings.

To defray the locally borne burden, three options stand out. One is to borrow. Indexed perpetuities would spread the real cost of this one-off disaster evenly over time. The real annual interest charge would be a mere pounds 38m per pounds 1bn borrowed.

A second is a temporary VAT charge on all foodstuffs. If levied for two years, this would raise about pounds 750m for each 1 per cent rate, allowing for uprating of welfare benefits.

A third could be a once-only capital levy on all agricultural landholdings. Even if levied at 2 per cent, with exemption for smallholdings, this could raise pounds 1bn or more. Over many years, landowners have been principal beneficiaries of the CAP and agricultural innovations, both safe and not so safe. Two centuries ago, Britain resorted to a stiff capital levy on land to raise funds to fight Napoleon. If fighting BSE to save lives and livelihoods is a once-in-a-blue-moon priority today, a land levy has merit.

Professor Peter Sinclair

Department of Economics

University of Birmingham