BBC European Business Correspondent Jonathan Charles: The pressure on Britain from the Germans is mounting

The Chancellor told his fellow finance ministers at the Ecofin meeting earlier this week that he would veto any proposals for tax harmonisation that would damage Britain's economic interests.

Now Mario Monti has said that he agrees with Mr. Brown.

"We don't feel hurt in the least by this or that minister claiming he will never accept full harmonisation of taxes decided by Brussels. That is our line also. We don't want this," he said.

Frances Maude says the EU wants higher taxes

Commissioner Monti's attempts to play down the conflict in the EU were countered by German MEP Christa Randzio-Plath who is chair of the European Parliament's monetary affairs subcommittee.

She insists that tax havens and, more importantly, the major disparities between EU members' tax levels - whether through indirect or direct taxation - are issues that will have to be addressed.

The Conservative Party in the UK has seized on the issue as an example of how Britain will be forced by the EU to ditch policies - like low taxes for companies - which create jobs and give it a comparative advantage.

Christa Randzio-Plant, German MEP on why tax harmonisation is necessary

Shadow Chancellor Frances Maude told Radio 4's World at One that the proposals would not go away, and could lead to higher taxes throughout Europe, and ultimately a direct attack on Britain's sovereignty.

He said that only personal taxes had been exempted from consideration by the EU for harmonisation, and that greater regulation would inevitably lead to higher levels of taxation.

Tax competition

Oskar Lafontaine wants more tax harmony

It is the German finance minister, Oskar Lafontaine, who is leading the drive for further tax harmonisation in Europe.

The new German government is keen to encourage jobs and growth throughout the EU, changing the focus from an exclusive emphasis on low prices.

But they are worried that countries with higher taxes and benefits, like Germany, could lose out if other countries were allowed to lower their taxes even further to attract investment.

Britain has twice lowered its corporate tax rate to what the government claims are the lowest rates in Europe.

Withholding tax

Also at issue is how to tax rich individuals who move money between countries, often to escape taxation.

Earlier in the year Austria proposed a withholding tax, where individuals who had bank accounts in other EU countries would have a minimum amount of their tax deducted automatically at source.

Britain fears such taxes could curb the lucrative business in personal investment based in the City of London.