Unsettling climate of EU disunity

Cameron and Osborne may talk up the EU but many Tories are engaged in a different ball game. Picture: PA
Cameron and Osborne may talk up the EU but many Tories are engaged in a different ball game. Picture: PA
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IT WAS a week that epitomised Britain’s fractious and sometimes turbulent relationship with the European Union. In Washington, Prime Minister David Cameron was promoting free trade between the trading bloc and the United States, while at home his ministers and backbenchers were squabbling over whether Britain should cancel its membership.

Businesses are now becoming increasingly anxious over the political debate and the prospect of a referendum. Only last week Scotland on Sunday revealed the concerns of Roger Gifford, the Lord Mayor of London, who said it could undermine investor confidence in the UK.

Today a survey from the British Chambers of Commerce reveals that the European Union is still the most popular market for UK companies, with 87 per cent of exporters trading with the 27-member bloc. Scottish exports are worth about £10 billion a year, with France and the Netherlands representing the largest markets.

But as Cameron spent the week telling US president Barack Obama that trade between the EU and the US could be worth up to £10bn a year to Britain, two of his ministers were saying they would vote for a British exit if a referendum were held now.

Britain has often taken a go-it-alone stance on Europe, a tendency that worries some in business who find the constant in-or-out debate deeply unsettling.

In a speech to the British-American Business Council on Friday, John Cridland, director general of the CBI, said: “For those of us in the business world, it feels like a diversion from what we should be doing in Europe, which is restoring growth, through trade deals, and championing the reforms that we want to see.

“These issues matter to the public too because their primary concerns are about the economy, jobs, and the cost of living. So for business and the public, it’s economic growth that matters. Growth at home and abroad.”

But ministers continue to show an ambivalence that sends mixed messages to business. Although Chancellor George Osborne was in Brussels trying to unite Europe in the fight against tax dodgers, he stands apart in his opposition to the EU’s proposed financial transaction tax (FTT), which aims to raise up to €35bn a year by taxing the trade in shares and bonds.

The argument over the FTT, which reared up again last week, has become a prime example of how Britain regularly refuses to play ball with its EU partners, a habit that has fuelled support for the UK Independence Party and business lobby groups opposed to Britain’s membership.

The UK has lodged an application at the European Court of Justice to block plans to allow 11 countries to press ahead with the levy, although the word in Brussels is that the 1 January implementation date is now looking highly unlikely. Regardless of when it comes into force, there are growing fears, fanned by London mayor Boris Johnson, that the FTT will drive business away from the City of London towards the US and Asia, even though the UK is one of 16 countries that have opted out of the scheme, which proposes a minimum tax of 0.1 per cent on share and bond trading.

However, opting out of the levy does not mean British financial institutions will be able to escape it, and officials say the country could actually be worse off outside the regime. This is because, for example, the sale of UK shares by a UK firm to a German one will incur both German FTT and UK stamp duty. And none of the proceeds from the European tax will go to states that have not signed up to it.

Outgoing Bank of England governor Sir Mervyn King says nobody within Europe’s central banking community thinks the FTT is a good idea, and officials in Brussels acknowledge that the industry will do its utmost to find ways around it.

The mood among officials in Brussels, however, is that issues such as this are not dealbreakers and it became clear that minds were more focused on tackling the region’s economic crisis than contemplating Britain’s standoff-ish nature and the threat of an exit. As one source said: “It’s not something we’re envisioning.”