Salami tactics lend succour to the Euro-sceptics

THE agreement on a minimum VAT rate of 15 per cent in the European Community has touched a surprisingly raw nerve. The Euro-sceptics, brought up on the notion that Parliament asserted its supremacy over the King by refusing to raise taxes, see the Chancellor's concession as merely the most insidious of several retreats before the ambitions of Brussels.

For Lord Tebbit, the agreement was 'contrary to a thousand years of British parliamentary history. It is a forfeiture of the right of the British people to decide their own taxes. It is to concede the right to a foreign body to interfere in national sovereignty.'

The rhetoric, though, is woefully overblown. If anything, the truth is precisely the reverse of what Lord Tebbit suggests. The whole idea of a minimum VAT rate is to ensure that governments can continue to levy tax rates high enough to meet their spending obligations. Without it, they would be defenceless against the effects of market forces.

The minimum is designed to forestall shoppers from using the new borderless Europe to buy washing machines or televisions in neighbouring countries where the VAT rate is sharply lower. Such cross- border shopping would erode the tax revenues of high VAT countries and gradually force all EC countries to cut their rates to compete. In other words, the minimum VAT rate is designed to protect national governments' tax revenues.

The practical effect of the measure is thus to increase national sovereignty by comparison with what would otherwise occur in a post-1992 Europe. It is an almost inevitable consequence of the decision that Margaret Thatcher took as Prime Minister to sign the Single European Act in 1985, creating the internal market. The alternative to a VAT floor would be falling indirect tax revenue, leading to lower public spending or higher income taxes.

Of course, cross-border shopping is always likely to be less important for Britain than for the cluster of countries around Luxembourg, but the Community can hardly be expected to shape legislation for 340 million people entirely on the basis of the geographical eccentricity of 57 million of them. Island though we are, we are either in this club, or we are not.

The measure will have negligible effects within Britain. The circumstances in which a British Chancellor would want to cut VAT from 17.5 per cent to less than 15 per cent are unimaginable for the foreseeable future, and certainly within the four years set out in the agreement. With a budget deficit heading towards pounds 40bn a year, taxes are unlikely to come down for a long time. Even if they could come down, the Government would want to cut income tax, not VAT.

There was even an uncovenanted bonus in the agreement. Though Britain is not disadvantaged by the VAT floor, the Chancellor managed to extract concessions in the taxation of Scotch whisky. The high growth markets for Scotch in the Mediterranean countries will not be curtailed by the imposition of the high levels of duty common in Britain and other northern European countries.

Given the compelling case for Norman Lamont's deal on UK grounds alone, the surprise is that the Chancellor and the Prime Minister should have been wrong- footed by the fireworks from the right.

Part of the reason is that the Chancellor has more sympathy with his critics than he has been able to say, which always cramps a good argument. But part is the age-old problem: on European issues, British governments have usually broken the first rule of good generalship. They have consistently chosen to fight their battles on ground chosen by their opponents.

This week, the Chancellor's defence of his package has been no exception. He has justified the deal on the grounds that it involves an insignificant erosion of parliamentary sovereignty, and thus deserves support. The tactic has been the same as it was with the Government's approach to the Maastricht treaty on monetary and political union: to persuade the right that the existence of the opt-out clause means the change is not serious enough to merit rebellion.

In other words, governments have adopted the salami-slicing technique in our approach to Europe: each little slice is hardly worth arguing about. But one consequence of this tactic is that it reinforces the right's belief that the European world is composed of two players: an encroaching European bureaucracy that wants to turn itself into a supergovernment for a superstate, and embattled national governments giving ground inch by inch. The right's basic thesis is confirmed, and it always lives to fight another day.

The result is that we joined the exchange rate mechanism 11 years late. We now have an opt-out clause that we will never use, and which has cost us any chance of securing the European central bank for London, its obvious and natural home. Nor have we been able to carry conviction in pressing for a genuine division of powers between the different levels of government that already exist in Europe: there should be a proper protection of 'states' rights', exactly as there is in the US constitution, but any British suggestion is seen as a way of hobbling even sensible proposals for integration.

Nor has the Government ever been able to lead public opinion to a true understanding of what the Community is about, which is particularly unfortunate at present. Until now, the Iron Curtain has been more responsible for keeping the peace in Europe than the Community. But the disappearance of Communism means the EC must take on precisely the role its founders envisaged, as a system of law governing the relations of European states.

The alternative is a slow and bitter relapse into the economic, political and military conflicts that scarred the old Europe of competing nation states. Those who ignore the lessons of history are condemned to repeat them.

Matthew Symonds is on holiday.