Proposals for annual price hikes in the minimum tax on energy and fuels could cripple firms in the region, according to the Commons European Scrutiny Committee. This could also hit drivers and consumers in the pocket, the influential body of MPs said in a new report. They warned that the new regime could see Northern Ireland further cut off from the mainland.
Gibraltar would also be hit as the Rock looks set to be made to follow tax rules set by the EU and Spain as part of its post-Brexit relationship with the bloc.
Sir Bill Cash, chairman of the powerful EU Scrutiny Committee, said: “Regardless of the Government’s intentions to negotiate more flexible settlements, as things stand Northern Ireland will, and Gibraltar may have to follow EU tax rules.
“The potential erosion of competitiveness of key industries in Northern Ireland and Gibraltar, and the possible social ructions that would follow, must be taken into account and taken seriously.”
Eurocrats are currently working on a draft Energy Taxation Directive that proposes annual increases in the minimum tax on energy and fuels.
It is expected to scrap a number of tax exemptions and will link tax levels to a fuel’s green credentials.
The MPs warned that Northern Ireland would automatically have to follow the EU’s new energy tax proposals because of the hated post-Brexit protocol to avoid a hard border.
They urged Downing Street to secure “substantial amendments” to the border fix in order to avoid a scenario where the region’s businesses competitiveness on the mainland.
“There is a risk of social consequences to this as unionists are opposed to any separation from the UK mainland, as riots early in 2021 against the Protocol showed,” their report sets out.
To keep the frontier open, Northern Ireland essentially remains in the EU’s single market, with a number of controls of goods shipped from the rest of the UK.
Linking EU energy tax levels to inflation would result in the costs of fuel for users in Northern Ireland shifting away from rates in England, Wales and Scotland.
Energy-intensive products made in the region would likely become increasingly uncompetitive in the UK market as a result.
And in a stark warning, Gibraltar could face even higher taxes with Spain set to control levies in the British overseas territory.
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Spain has secured a number of demands in the EU’s negotiating mandate that give Madrid huge powers over the British Overseas Territory.
The talks are expected to start properly before the end of the year.
EU capitals and MEPs still need to sign off on the proposed law.