The free movement of goods, persons, services and capital is a fundamental principle of the European Union. These four freedoms form the basis of the single market.

The UK Government believes that the single European market benefits the economy of each member state, and that the removal of trade barriers leads to a reduction in business costs as well as increasing competition and stimulating efficiency, benefiting consumers and encouraging the creation of jobs and wealth.

The single market is good for growth and jobs. EU GDP in 2002 was 1.8 per cent higher (£110 billion) than it would have been without the Single Market, equivalent to a benefit of £20bn for the UK economy. (This figure comes from an economic study of the effect of the single market.)

The single market is the world’s largest international free trade area. This has meant that there is a wider market for UK goods - with EU enlargement, UK business has access to over 490 million customers and in 2003, British companies exported approx £105bn worth of goods to the EU15. Since 1990, UK exports to the 10 new member states have grown more than twice as fast as those to the rest of the world and imports three times as fast.

Greater competition and liberalisation has led to lower prices for consumers.

Liberalisation of the energy markets is bringing better prices, efficiency, choice and better levels of service to consumers.

For the largest consumers of electricity the average EU price in 2004 was roughly 15 per cent lower in real terms than in 1995.

Opening up of air transport markets in the 80s and 90s has created a new and rapidly growing market in budget airlines.

Promotional fares have fallen by some 41 per cent between 1992-2000. There are now more routes linking member states (a 46 per cent increase compared to 1992), giving passengers a wider choice of destinations and carriers.

The single market has facilitated the transfer of knowledge and increased innovation, for example in the telecoms sector, resulting in more advanced services for customers. Internet penetration in EU households rose from 18 per cent to 40 per cent in 2000-02. Now a mass-market broadband solution is now available to 95 per cent of the UK population.

Tax

The single market has also reduced fiscal barriers and, although tax is primarily a national issue, the European Union does have limited and specific competence in this area. For example, the Community has competence in indirect tax such as VAT as this is required to make the single market work. However, Article 93 of the treaty also states that proposals on taxation must be agreed unanimously. The UK therefore has a veto on indirect taxation.

On direct tax, there is no explicit Community competence and decisions remain primarily a matter for national governments. The Treaty does allow measures on direct tax to be adopted where necessary for the operation of the single market, but these too must be adopted by unanimity.

Tax is a key aspect of national identity and the UK Government will continue to insist that unanimity applies for tax matters and will vigorously oppose any proposals in Europe for tax harmonisation that would harm UK interests.

The UK Government believes that in tax policy the challenges of an increasingly global marketplace can best be met by delivering open, flexible and competitive tax systems across the EU. Neither the demands of the modern global economy, nor the principles of subsidiarity and political legitimacy can justify harmonisation of tax rates or bases at an EU level.

For general information on the work of the European Commission on taxation and customs union policies, see the Commission's Taxation and Customs Union website.