UK Could Join Euro Without Raising Taxes

by Caroline Maxwell, Tax-News.com, London

21 May 2002

Spanish Finance Minister, Rodrigo Rato has hinted that the United Kingdom could join the euro without increasing taxes or greatly reducing government spending. This follows a UK budget delivered in April which predicted government borrowing of around £18 billion in fiscal 2006-07 to fund increased investment in the ailing National Health Service.

Mr Rato, whose country currently holds the rotating EU presidency, told the Financial Times at the weekend that were the UK to join the 15 other eurozone countries, it might be allowed to continue to run a cyclically adjusted deficit - in contravention of the commitment made by eurozone countries to bring their budgets close to balance in the medium term.

Last year's economic slowdown brought the need for flexibility within the context of the EU Stability Pact very much to the fore, and European governments agreed that commitments to cut borrowing should, in the final analysis, be prioritised below stimulating their economies in the event of a slowdown.

However, according to the FT, there is scope for disagreement as to how long Britain's deficit might be allowed to persist if it agrees to monetary union.

Meanwhile, there has been frenzied speculation in the UK media over the government's position on the euro. The Sunday Telegraph reported that Chancellor Gordon Brown had given his support to the idea of a referendum on the abolition of the pound, and had authorised his supporters to 'talk up' the possibility of joining the eurozone.

However, the Treasury has since denied that any such authorisation was given. A spokesman told the Bloomberg news service on Sunday that: 'There's no truth to it at all. The position on the euro is unchanged. The economic tests are paramount and nobody...not even the Chancellor...is going to change that approach.'

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