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Thursday, December 10, 1998 Published at 08:32 GMT

UK Politics

Finances row threatens summit

Tony Blair is keen to avoid UK being sidelined

UK Prime Minister Tony Blair will arrive in Vienna for the European Summit braced for a row over the UK's annual £2bn EU rebate.

The BBC's David Shukman: A growing belief among many in the EU that the rebate is no longer justified
Germany and France appear determined to try to get the UK to put the rebate up for grabs as part of a general reform of EU finances designed to see the union through until 2006.

But Mr Blair has vowed to veto any moves towards that - if necessary - while sticking to the government's stance of constructive engagement in European talks.

The rebate was agreed in 1984 by the then prime minister Margaret Thatcher following a series of rows over the UK's contribution to what was then the EEC.

Under the deal, for every £1.50 per capita the UK pours into European coffers, it gets £1 back.

UK negotiates with Germany

Mr Blair looks set to come up against German opposition over the rebate.

The prime minister sought on Wednesday to negotiate a joint "position statement" with Germany on another thorny issue - tax harmonisation - ahead of the gathering of European leaders.

Mr Blair's joint statement with German Chancellor Gerhard Schroeder was designed to defuse the simmering row, over the possible harmonisation of taxes across the union.

The statement said there was no intention to create a uniform corporation tax on company profits or link personal income tax rates across the EU.

[ image: The joint statement was designed to defuse tax harmonisation row]
The joint statement was designed to defuse tax harmonisation row
But the UK will face a fierce battle to retain the tax haven status of areas such as the Channel Islands, and over a proposed "withholding tax" which could affect the City's traffic in Eurobonds and other savings and investments.

Conservative leader William Hague told BBC Radio 4's Today programme the government was merely following the herd over the issue.

He said the government was "clearly in retreat".

William Hague on the Today programme
Mr Hague said: "The truth is they are going with the flow.

"Instead of leading by example, they have a tendency to follow the herd. That is because they don't have any guiding principles or beliefs of their own.

"They are now tending to go along with centre-left or left-wing governments in Europe who actually believe in higher taxes, more regulation, high government spending - all things we know don't work."

The Vienna summit marks the end of Austria's presidency of the EU, and its President Viktor Klima is keen to use the summit to make sure preparations for the introduction of the Euro next month are well in hand.

The UK is one of four of the 15 member states which will not join the single currency when it comes into use for trading purposes. Notes and coins are not scheduled to come into circulation until 2002.

Mr Blair will be keen to stress his role in preparing a new, co-ordinated foreign and defence policy for the EU - stopping well short of a European standing army - to avoid the impression of the UK being sidelined because of its refusal to join the first wave of the single currency.

But that will form only a small part of talks at the summit, and British officials concede they are likely to come under considerable pressure over the rebate.

Mr Blair will attend a dinner of socialist leaders on Thursday night before the summit proper begins on Friday.

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