Brown: taxing question

The European Commission will this week demand a 10 per cent reduction in the cost of petrol in Britain in a move which will put the chancellor on a collision course with his EU counterparts.

The move to harmonise levels of fuel tax is likely to be fiercely opposed by Gordon Brown - who last year faced a highly-charged protest against the price of fuel.

Whilst Britain is expected to veto the plans, the government can expect further protests against its taxation policy - which sees fuel in the UK the most expensive anywhere in the EU.

Under the measures, to be outlined in an EU white paper on transport on Wednesday, the price of petrol would drop from 78 pence per litre to 70 pence. This contrasts with lower priced petrol in many countries. In Greece a litre costs 47 pence, in Luxembourg 49 pence and 64 pence in France.

The European Commission believes the disparity in fuel prices is destablising the single market and it wants to reduce the cost in the most expensive countries and increase it in some others.

"With the road transport sector now fully opened up to competition, the absence of harmonised fuel taxes is increasingly an obstacle to the smooth functioning of the internal market," the white paper says. "Excise duties differ enormously from one country to another, ranging from 20p per litre on unleaded petrol in Greece to 50p per litre in the United Kingdom. In the medium term, petrol and diesel should be taxed similarly for all consumers."

The Treasury has said it will strongly oppose the plans - which would see the chancellor losing an amount equivalent to 1.5 per cent on income tax.