Brown set to cut UK loose from the EU

IN a move bound to create massive controversy, Chancellor Gordon Brown will use his Budget next month to start redefining Britain's economic relationship with the European Union.

The Chancellor has told close colleagues that workplace regulations imposed by Brussels are harming British business. And in a bold move to aid the country's army of small firms, he will contest such measures as the 48-hour maximum working week and other obstacles to flexible working.

Such action, while widely welcomed by businesses, would be seen as extremely provocative because it would require renegotiations to key European treaties. But Brown is determined that, once the expected war in Iraq is over, he will boost British businesses by slashing the burden of red tape on them.

The Chancellor is also unhappy about the way regional aid policy pours cash into failing enterprises across the EU. And he is vehemently opposed to the sweeping federalism of the new European Convention on the future of Europe, which would put economic matters under pan-European control.

Increasingly, Brown has made no secret of his disillusion with the way the eurozone economies are run - and he is determined to stop the rot spreading to British business. He has also indicated he is ready to confront head-on the trade unions who will be dismayed by such a 'Eurosceptic' agenda.

The Chancellor signalled his dramatic policy initiative when he gave evidence to the Treasury Select Committee on Thursday. He told MPs that discussions were going on in Europe about a range of sweeping economic reforms he wants.

They include a shake-up of wasteful EU state aid to industry, moves to help start firms, a massive boost to competition, the opening-up of Europe's closed-shop financial industry, and an overhaul of the scandal-prone system of regional subsidies. He said that his Budget, expected late in March, would reflect his progress on securing his demands.

The tough stance will inevitably fuel fears at Number 10 that he is poised to rule out early membership of the single currency. And it will fuel the paranoia in the Blair camp that the Chancellor is beginning to carve out distinctive territory for a future Brown leadership.

Brown has made clear his determination to see greater wage and working time flexibility across the EU even if unions object. The Chancellor agrees that job security and fair employment rights are highly desirable social goals, even if that means some additional costs on business. But he argues it is important to get the balance right. Workers' rights are not best safeguarded, he argues, by denying access to work for those who do not have it.

Britain currently has a partial opt-out from the controversial 48-hour maximum working time directive, allowing certain employees to work longer if they wish. Brown is determined to extend this freedom and resist any attempt in Brussels to remove the UK's exemption.

In his evidence to the Treasury Committee, he made clear his opposition to the work of the Convention on the future of Europe, chaired by former French President Valery Giscard d'Estaing. The Convention is drafting what amounts to a new constitution for the enlarged EU.

Brown said: 'We will continue to vigorously oppose proposals in Europe for qualified majority voting on tax and tax harmonisation that would harm UK interests'. And he said bluntly: 'We will not accept the federal approach to economic policy.'

Brown's radical plans would transform the way Brussels works in many fundamental ways. He is demanding a sweeping change to the EU's often wasteful system for handing out taxpayers' cash to prop up ailing industries. He wants to see the system switched away from wasteful efforts to support specific lame duck industries such as coal. Instead they would be directed towards training, research and development, and small firms which promise to boost production in the long run.

Britain would gain because it pumps the least State subsidy into its firms. Out of the 15 EU member countries it spends only around half a% of GDP on subsidy - roughly one-third the amount put in by the worst offenders - Belgium, Germany, Italy, Portugal and Finland.

The Chancellor is also demanding that the EU makes it much easier to set up and run a small firm. He wants Brussels to adopt a much lighter touch to the introduction of European laws - even to the extent of exempting firms on a case-by-case basis.

Brown wants specific targets for slashing red tape, with the aim of halving the time and costs of setting up a company and reducig the overall administrative burden by 25%.

As for the EU's £145bn-a-year policy for bailing out poor regions, the Chancellor insists that it works against British interests and needs a major overhaul. The practice of pumping billions of euros into underperforming areas according to levels of deprivation should be recast. Instead the money should be targeted more precisely on enabling every nation and region to improve their economic performance.

Brown complains that regional policy has not, for example, been sufficiently flexible to help struggling areas compete effectively with their more prosperous rivals. The bureaucratic approach means the cash often does not go to projects that would produce the most benefit.