Prodi puts more pressure on Britain over Eurobond tax

ROMANO PRODI, the president of the European Commission, increased the pressure on Tony Blair last night, arguing that his opposition to an EU savings tax illustrates the need to scrap the national veto on tax issues.

The intervention follows the latest spat between Mr Blair and his German counterpart, Gerhard Schroder, who made another attack on the UK's tax stance yesterday, characterising it as "protectionism".

Gordon Brown, the Chancellor, was isolated at a meeting of finance ministers on Monday, which agreed that the issue - deadlocked by British objections - should still be discussed by heads of government at next week's summit of EU leaders in Helsinki.

Mr Prodi fanned the flames yesterday, telling the European Parliament that the tax package was "handicapped" by the need for unanimity and that, as long as these procedures continued, the EU would be "like a soldier trying to march with a ball and chain around one leg".

"The unanimity requirement means either complete paralysis or reducing everything to the lowest common denominator," he said. "It is simply a non-starter in today's world."

The proposed legislation is designed to prevent EU citizens investing in neighbouring countries to escape paying tax on interest in their own. It would force member states either to levy a tax - probably 20 per cent - on interest paid to non- resident EU citizens, or to inform tax authorities in their native country about earnings.

Despite the prospect of an embarrassing summit row, Downing Street shows no signs of conceding. It has demanded an exemption for Eurobonds, claiming that thousands of jobs in the City are at stake.

The proposed EU legislation is designed to target only 5 per cent of the London Eurobond trade because there will be exemptions for the financial institutions and holders of bonds already issued. Nevertheless, the Government argues that the administrative complications of identifying that 5 per cent would add to costs.

The European Commission has said it wants a change to ensure that tax is one of a number of issues covered by majority voting. The British Government has said it will not renounce the veto on tax, defence or other central issues.