THE EUROSCEPTIC alarm over the threat of tax harmonisation hitting Britain was fuelled yesterday by Jacques Santer, the President of the European Commission, when he refused to rule out an end to the national veto on EU tax proposals.

Tony Blair will today re-emphasise Britain's readiness to use the veto if necessary to prevent any moves which would damage national interests when he meets President Jacques Chirac for an Anglo-French summit in St Malo in Brittany.

Mr Blair told MPs yesterday that Britain was prepared to stand alone in Europe if necessary in opposition to plans for greater tax harmonisation.

The Prime Minister's official spokesman attacked the "hysteria" in the British media about the apparent push towards tax harmonisation by Oskar Lafontaine, the German Finance Minister, and his French counterpart, Dominique Strauss-Kahn, at a Franco-German meeting on Tuesday.

That view was shared by Mr Santer, who said: "When I read the British press, I sometimes think I find myself in a different world, not the world that I want."

But Mr Santer added to the controversy by arguing for further co-ordination of VAT rates, and refusing to rule out the possibility that countries may eventually lose the veto on tax decisions.

The two-day summit meeting between Britain and France was intended to be dominated by an Anglo-French statement of co-operation on defence, leading to the replacement of the Western European Union defence arm by an EU defence policy.

But the meeting is almost certain to be overshadowed by the thorny issue of taxation. Mr Blair will be accompanied by other senior ministers, including John Prescott, the Deputy Prime Minister, who will be discussing co-operation ontransport, the Secretary of State for Defence, George Robertson, and Robin Cook, the Foreign Secretary.

Mr Cook today will try to damp down the expected Tory attack in a debate in the Commons on Europe by making it clear there is no threat of tax harmonisation while the Government retains the veto. He will also tell MPs that tax harmonisation does not mean all EU members states have to have the same tax regimes.

Mr Santer supported arguments made by Mr Lafontaine that progress on tax matters would in the long run require a shift to majority voting, but added: "For the time being we have got the treaty and we have to be guardians of that treaty."

Blair's deal, page 2