Global Policy Forum

By Paul Eastham

Gordon Brown last night lost the first round in a battle to prevent the EU taking control of Britain's tax system. In a major setback, the 15 EU governments agreed to 'take another look' at imposing an EU-wide energy tax a move Britain has fiercely resisted for more than a decade.

The Swedish hosts of the meeting aware of the sensitivity of the issue insisted the debate would not immediately address the level of any tax. But tax commissioner Frits Bolkestein said that taxes on petrol, home heating fuel and other fuels must be raised if the EU is to make significant energy savings. He insisted that an EU-wide energy tax is essential to meet its promises to cut greenhouse gas emissions under the Kyoto agreement.

Although last night's deal was only an agreement in principle, the move is a major setback for Mr. Brown because he had suggested before the meeting that he would work hard to kill any move towards common EU taxes. The Chancellor was confident after he defeated moves for an EU-wide tax on savings last year.

The British government has also successfully watered down French plans for a tax on art sales, which at one time threatened to destroy the lucrative British art auction market. But Mr. Brown's aim at yesterday's meeting was to draw a line in the sand, making it clear that Britain would never accept any EU-wide taxes and would oppose any move to give Brussels the power to interfere in British tax levels. Instead, he has been forced to agree the opposite.

The news will go down badly in British boardrooms and particularly in the thousands of companies which have set up their headquarters in the UK because taxes are lower here. Before the meeting, Mr. Brown boasted that he would tell his counterparts that the EU should shun any talk of 'harmonizing' taxes. He was planning to tell them not to introduce pan-European taxes which would undermine the competitiveness of European companies compared with their rivals in the rest of the world. But his words fell on deaf ears. Instead, Brussels took a big step towards what many believe is the ultimate goal of Euro-federalists a single economy and a single tax system alongside a single currency.

The energy tax issue came up as part of a broader debate on how differences in taxes, tax rates and collection methods currently hamper the functioning of the EU's single market. The Chancellor argued that the EU should not control raising taxes as a matter of principle. But Mr. Bolkestein said that an EU tax strategy had to reflect 'the future shape and direction of the EU's overall tax policy'.

Meanwhile, EU president Romano Prodi boasted that Europe's economy is now stronger than that of the United States. He added: 'It is now Europe that provides the locomotive power for the world economy.' His words were dismissed by US Treasury Secretary Paul O'Neill, who questioned whether the EU would escape the US downturn.