Bonn asks UK for fuel tax ideas

Date: 21/01/1999

By Tim Jones

BONN is calling on the UK government to devise a scheme for exempting households from fuel levies in the latest bid to break the deadlock over the long-delayed plan for an EU-wide energy tax.

The request, contained in a paper prepared by the German presidency for a meeting of fiscal diplomats next Tuesday (26 January), will be welcomed by UK Finance Minister Gordon Brown, who wants an open-ended energy tax exemption for domestically burned fuel.

Under the European Commission's tax plan, member states would extend existing minimum rates of excise duty on mineral oils to other products, including electricity, coal and natural gas. Levies on oils set six years ago would also be uprated in three phases until 2002.

Germany's ruling Socialist-Green coalition is keen to break the impasse over the proposed EU-wide tax as its own plans to increase and extend national energy levies are being investigated by the institution for possible use of illegal state aid.

Competition Commissioner Karel van Miert is investigating tax breaks awarded to 27 energy-intensive manufacturing sectors - thought to include cement, aluminium, glass, steel and ceramics - to judge whether they meet the EU's environmental subsidy guidelines.

"We really want to see progress at the European level with energy taxation," said Barbara Hendricks, German parliamentary state secretary for tax affairs. "Since we intend to achieve this as soon as possible through European regulation, then it should not be problematic to get competition approval for our plans."

Hendricks said the plan for new Union-wide taxes would include exemptions for high energy-consuming firms, adding: "At the European level, we have yet to define exactly what energy-intensive companies are. There will have to be a definition that will be universally recognised."

She declined to commit herself to exempting homes from paying any new Union energy taxes, but acknowledged that there were "limits to the burdens that can be imposed on households".

In an attempt to make progress on the trickiest parts of the tax plan before they hand over the presidency to the Finns in July, the Germans are urging negotiators to focus on three key sticking points.

First, the paper suggests that governments seeking an exemption for "private consumption on social grounds" should come forward with a detailed method for enshrining this in Union law. If agreed by other member states, this could allow the UK to withdraw its objections to the plan.

The presidency will also ask other member states, such as Spain, which have "fundamental objections" to extending minimum excise duty rates to gas and electricity, to propose "special measures" to address their problems. Duties could, for instance, begin at zero and rise within a set time-limit.

The Germans are also requesting clarification from Greece, Spain and Portugal, which all still rely heavily on burning oil to produce energy, on how long they would need to be exempted from uprating duties on mineral oils.