We have become more powerful IX

"And for all of those that say, if you look at the last thirty years, we have lost power to Brussels, actually it isn't true. In the last, certainly in the last eight years, as we, the Labour government, have been more involved in Europe, so we have become more powerful and more prosperous, better able, literally to implement a patriotic case for the European Union."

Jack Straw
Foreign Secretary
BBC Today Programme, 9 February 2005

According to the Sunday Times business section the government is struggling to convince our masters in Brussels, the EU commission, that it has not provided billions of pounds in illegal state aid to BT.

The report says that the commission last week published a letter, sent to foreign secretary Jack Straw, that sets out the grounds for an ongoing investigation into the government's allegedly favourable treatment of BT. It is claimed that BT pays only a fraction of the business rates it ought to pay on its telecoms network. Some estimates put the saving at more than £1 billion a year.

Neelie "Board Lady" Kroes, the EU's competition commissioner, is cited as having rejected Britain’s justification for its assessment of BT's rateable value. We are told she has asked for more detailed information to enable the commission to calculate the precise amount of aid received by BT and by Kingston Communications, which operates the telephone system in Hull.

The Sunday Times points out that this dispute is a potential embarrassment for the government – something of an understatement. It embraces the Department of Trade and Industry, the Inland Revenue's Valuation Office Agency (VOA), and the Office of the Deputy Prime Minister (ODPM), among others.

The complaints stem from the rateable value of BT's network assets, set at £493m after a long battle between the company and the VOA in the late 1990s. Rivals complain they are assessed for rates on a much less favourable basis.

Vtesse Networks, the small company that has brought the complaint, pays rates equal to 7-10 percent of its turnover. According to the commission, BT's rates bill has been as little as 2 percent of its turnover.

The British authorities have sought to justify BT's treatment by reference to its size, the integrity of its network and its universal service obligations. The commission rejected all these. Kroes is quoted as saying: "This statement appears incompatible with the commission’s position in previous fiscal aid cases stipulating that nothing justified preferential treatment in favour of large companies."

BT said allegations of state aid were groundless because it had received no benefits from the government. "BT is confident that the UK government will demonstrate the fairness of the UK rating system."

Aidan Paul, chief executive of Vtesse, said the rateable value of each of BT's 28m local lines was about £9 - compared with about £100 for any lines "unbundled" and taken over by its competitors. "There could have been a £12 billion under-payment since 1995," he said.

If this case goes the full course, the government could find itself being forced to charge BT that extra £12 billion – or whatever sum the commission decides upon - wrecking any further plans for developing the telecommunications business, and imposing significant costs on consumers – who will have to pay the bill.

Yet again, it is good to see how much more powerful we have become since the Labour government became more involved in Europe.