Tax revolution is worst-kept secret

Date: 26/11/1998

NOTHING in the EU policy-making arena generates more heat and less light than taxation.

Only the handful of people involved in this rarefied area and those whose job requires them to follow their every move have a clue about what is going on. Everyone else has to rely on what they read in the newspapers and that - judging by his performance this week - includes British Finance Minister Gordon Brown.

“Tax harmonisation is not the way forward for Europe,” he declared during a break at a meeting with his EU counterparts. “As far as Britain is concerned, tax decisions are made in Britain not Brussels.”

Brown's remarks suggested he had allowed himself to be panicked by weekend newspaper headlines following the 'revelation' that the Party of European Socialists had agreed an anodyne economic policy document and posted it on the Internet back in April. The story in London was that Brown had signed up to a report which would impose extra costs on employers and give up the UK treasury's God-given right to tax the British people.

Yet while Brown was brandishing his veto, one of his three junior ministers was carefully putting the finishing touches to a plan for ironing out major differences in corporate tax systems. Dawn Primarolo, the chairwoman of a group established by EU ministers in May to help eliminate predatory company tax regimes, is the financial secretary to the treasury and has often underlined her commitment to ending “harmful tax competition”. Moreover, Brown will give his approval next week to an Austrian presidency paper on energy taxation. This has been drafted very much with the British in mind since it allows for an exemption from energy taxes for households - a long-time UK demand.

Brown is also just itching to introduce 'green' taxes at home. He covered his back by commissioning a report from British Airways chairman Colin Marshall into the potential for energy taxes on business. If he could also portray the imposition of a new tax as partly EU-mandated, his hands would be clean.

Even the Commission's proposal for taxing interest has failed to generate Brown's direct wrath. Instead, the dossier has been left to swing in the wind while the real negotiations centre on energy and company profits. Here, the Germans and the French are little better than the Brits. The latest energy tax plan has been on the table for more than a year and has been endlessly redrafted. The code of conduct group has slogged away, delving into the minutiae of corporate tax behaviour, for six months. Yet to listen to German Finance Minister Oskar Lafontaine or France's Dominique Strauss-Kahn, you would think they had just come up with the idea of reaching a savings/energy/corporate tax deal next year.

If they do, it will be largely because Brown has revolutionised the UK's approach to tax harmonisation. Why doesn't he just admit it?