EU Draws up Plans For First Direct Tax With Fuel Levy

Proposals expected to be announced next month would give the EU its first funding which would not come from national governments.

Algirdas Semeta, the new European commissioner for taxation, is planning a "minimum rate of tax on carbon" across the whole EU as a "priority".

"In my estimation it is possible to start discussions," he told European Voice, a weekly Brussels newspaper. "There is currently the right momentum."

A similar proposal was considered so controversial that it was shelved without discussion five years ago.

The plan to push for more financial independence from national governments comes as the EU attempts to build a more powerful position in the world.

Following the new Lisbon Treaty, the EU now has an expensive array of new institutions including a new President of Europe and a foreign minister with her own diplomatic service.

Hervé Jouanjean, Director General of the European Commission's Budget department, recently told a Brussels audience that the EU was "very close to paralysis" because of the reluctance of stretched national treasuries to give it funding.

"We should have a mechanism which would serve to exploit the possibility, in a progressive way, to lead to direct funding of the EU," he said.

Herman Van Rompuy, the new EU president, has already thrown his weight behind the idea of new taxes.

The new tax would lead to direct rises in petrol and energy bills and additional price increases due to higher costs for industry.

Open Europe, the think-tank, has calculated, on the basis of the shelved 2005 proposal that set a £9 levy on a tonne of CO2, that the cost of the new tax to British businesses and consumers would be £3.2 billion. The final cost could be even greater if electricity, generated from natural gas, was included in the levy.

Mats Persson, director of Open Europe, warned that "a single EU levy is an unnecessarily inflexible tool" that takes no account of existing national taxes or measures to cut climate change.

"A single flat rate will disproportionately hit poorer consumers who spend a larger share of their income on energy and fuel bills," he said. "It will also impose a disproportionate burden on small businesses, which are vital for economic recovery and growth. The EU needs a more flexible and proportionate approach to cutting carbon emissions."

France and Sweden are enthusiastic supporters of an EU carbon tax as a part of Europe's fight against climate change. While many countries have yet to take a position Britain has been a lone voice in opposition to the new Brussels tax.

"We do not support the idea of a mandatory pan-European carbon tax," said a British spokesman. "We believe that member states are best placed to choose the policy tools for achieving their climate-change objectives."

Under current European energy taxation law, the EU sets minimum tax rates for energy sources such as petrol, coal, and natural gas when they are used as motor and heating fuel or to produce electricity.

Under the current law, the tax to be paid is calculated according to the quantity of fuel that is consumed but the Commission wants this changed so that it is calculated according to CO2 emissions.

The idea of using fuel duties and eco-taxes to give the EU a direct and independent source of income has long been demanded by the Commission. Proposals currently circulating in Brussels could mean that all airline tickets, shopping and petrol station receipts in Britain list the amount of aviation tax, VAT or fuel duty that goes directly to Brussels as an "EU tax".

Details of the plan came as research by the AA has showed British drivers have been already been hit with higher tax rises on fuel, up to five times bigger than their counterparts in the rest of Western Europe since the end of the credit crunch.

Fuel duty and VAT on petrol has increased by 11.46 per cent since the end of November last year, compared with only 2.23 per cent in Austria. The UK rise is more than double the 5.07 per cent average for Western Europe as a whole.

Daily Telegraph