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UK's Brown the sceptic blasts EU federalism

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  • UK's Brown the sceptic blasts EU federalism

    The Chancellor writes exclusively in The Telegraph on why Europe must learn from Britain's economy

    Gordon Brown has raised the stakes in the battle over a new European constitution by demanding categorical assurances that it will not lead to the harmonisation of taxes and a federal European state.

    Returning to the political front line after two weeks paternity leave, the Chancellor exposes a growing rift between the Treasury and No 10 over the importance of the proposed constitution for a 25-member European Union.

    Writing in The Telegraph today Mr Brown calls on EU leaders explicitly to reject "grandiose schemes" for harmonising corporate and other taxes and back Britain's plans for tax competition.

    He says the EU must abandon "old flawed assumptions that a single market should lead inexorably to tax harmonisation, fiscal federalism and then a federal state".

    Mr Brown calls on EU leaders to remove "ambiguities" from the draft constitution that could undermine the role of national governments in economic decision-making.

    His decision to draw attention to concerns over the implications of the constitution is in sharp contrast to repeated assurances from Tony Blair that it will not threaten Britain's ability to set its own taxes or change fundamentally this country's constitutional relationship with the EU.

    The Chancellor's language, particularly raising the spectre of a slide towards a "federal state", has strong eurosceptic overtones.

    It will be seized upon by opponents of the new constitution, undermining Mr Blair's efforts to resist pressure from the Conservative Party for a referendum before Britain signs up to the new blueprint for an enlarged EU.

    Mr Brown has already emerged as a significant obstacle to early British membership of the euro because of his reluctance to hand control over monetary policy to a European Central Bank.

    In his article today, Mr Brown contrasts the "rigidities, inflexibilities and lack of competitiveness" of the rest of Europe with the more flexible and open economies of Britain and the United States.

    He claims that Britain is leading the European recovery. More countries now agreed that keeping the veto on tax and rejecting federal approaches to fiscal policy "are not only right for Britain but right for Europe too".

    By raising concerns over the EU constitution Mr Brown has put further distance between himself and the Prime Minister over the pace of further European integration.

    Mr Blair has repeatedly played down the implications of drawing up the EU's first formal constitution, dismissing what he has described as "hares and scares" about the extension of Brussels' powers.

    In June he told MPs the proposed constitution "recognises expressly that what we want is a Europe of nations, not a federal superstate, and that issues to do with taxation, foreign policy, defence policy and our own British borders will remain the prerogative of our own national Government and Parliament".

    Downing Street reaffirmed yesterday that harmonisation of taxes was one of Britain's "red lines". Officials said it would be vetoed by Mr Blair if it was proposed during negotiations on the constitution next month.

    Mr Brown, however, is worried that the small print of the treaty could still enable the EU to press ahead with tax harmonisation.

    He said it contained "ambiguities" that might, if unravelled, damage jobs and economic dynamism.

    At a meeting of European finance ministers in Brussels yesterday, Mr Brown said the European Commission was still pushing to harmonise VAT and remove Britain's opt-out from charging VAT on children's clothes and shoes.

    The issue will be back on the agenda later this month, even though Europe's relatively poor economic performance now proved that a "federal fiscal policy" was not the way forward.

    The Chancellor was speaking over lunch - his first day back at work after paternity leave. His EU colleagues all congratulated him on the birth of his son, John.

    Mr Brown said continental Europe was failing economically while Britain's economy was flourishing. While tax harmonisation might be the way forward for a "sheltered trade bloc", it was not the future for the EU member states in a competitive global market.

    He is concerned that the draft constitution is too loosely worded on whether economic policy should be driven by nation states, the European Commission or the European Parliament.

    Mr Brown is insisting it should spell out that only the council of ministers - on which all 25 national governments of the EU will be represented - can agree rules on the maximum budget deficits member states can run up.

    He wants it recognised in the Treaty that tax harmonisation is explicitly rejected by the national governments.

    Mr Brown's call for Europe to copy the US will be supported today by Denis MacShane, the minister for Europe. In a speech in London he will say it is time the EC woke up to the growing economic weakness of Europe.

    Romano Prodi, the EC president, "should worry less about more powers for Brussels and worry more about more jobs for Europe", according to Mr MacShane.