Christopher Booker's Notebook
A surreal dispute has arisen between HM Customs and Excise and the charity running a Cotswolds opera company. By convincing themselves that, under an EC directive, profits and losses are the same thing, the VAT-men wish retrospectively to deprive the Longborough Festival Opera company of £60,000 that would otherwise be used to help good causes.
Some years back, Martin Graham, an enlightened property developer, built a small Palladian opera house in his garden near Moreton-in-Marsh, in Gloucestershire, to stage an annual summer season of operas on the model of Glyndebourne or Garsington.
A highlight this year, along with The Marriage of Figaro and Madame Butterfly, has been a slimmed-down version of Wagner's Ring cycle, in which Sir Donald McIntyre returned to the boards to re-enact his role as one of the finest Wotans of all time.
The purpose of this enterprise, which for Mr Graham and his wife, Lizzie, has become "a way of life", is not just to stage high-class opera performances, but to provide help and facilities for a wide range of charitable causes, from Sue Ryder and the Historic Churches Preservation Trust to the local village school, where Mr Graham began his education.
Last year, in the course of a routine VAT investigation, the inspector came across a letter from Mr Graham to his fellow trustees of the charity that runs the opera house, assuring them that, if the opera company for any reason showed a deficit on its annual accounts, he would personally meet the loss. This, the VAT-men ruled, gave him a "financial interest" in the company.
As a result, it could no longer enjoy exemption from VAT and must charge 17.5 per cent on its ticket sales. Furthermore, this would apply to two seasons retrospectively. The company must therefore hand over all the VAT it unwittingly failed to collect from its audiences.
A letter from L Bingham of HM Customs and Excise explained that Mr Graham's guarantee to the company did not meet the requirements of "the second indent of Article 13(2)(a) of the EC 6th VAT Directive", which states that for VAT purposes charities must be administered "by persons who have no direct or indirect interest" in "the result of the activities concerned".
It was no good pointing out that Mr Graham was not proposing to take money out of the charity, but was merely guaranteeing it against any loss.
As Laura Butler of HM Treasury confirmed, HM Customs interprets "losses and deficits" as being exactly the same in this context as "profits and gains". Mr Graham's reassurance to his fellow trustees that he would meet any losses is thus being read by the officials as being no different in EC law from him wishing to exploit the charity for personal profit.
On such reasoning, HM Customs now wishes to penalise the charity by demanding back-payments of £60,000: money that will therefore be no longer available to fund the company's other charitable activities.
On November 17, when the case comes before the VAT Tribunal, its members will have a last chance to reverse this decision - by informing HM Customs and the Treasury that, despite their reading of EC law, in the real world profits and losses are not quite the same.
A series of probing parliamentary questions put last week to the Secretary of State for Defence by a Tory defence spokesman, Gerald Howarth MP, is trying to make the Government come clean about the immense military implications of the EU's proposed Galileo satellite system. This could be the final straw in ending Britain's close defence alliance with the United States.
The purpose of the multi-billion-euro Galileo project, supported by Britain, is to set up a direct EU rival to the US's GPS (global positioning satellite) system. Until now, Britain has supported the cover story that Galileo, run by the European Commission's energy and transport directorate, is intended purely for civil use.
But in 2002, the commission admitted in an "information note" that "Galileo will underpin the common European defence policy" by giving "the EU a military capability".
Earlier this year, with the potential military uses of Galileo as a rival to the US system in mind, China took a 20 per cent share in the project. Russia and Israel have shown a similar interest.
In June, the commission's White Paper on space policy (A New European Frontier for an Expanding Union) confirmed that Galileo would "provide direct contributions to the Union's Common Foreign and Security Policy and its European Security and Defence Policy". In August, the commission recommended spending €10 billion a year on the EU space programme from 2007 on, when space policy will become a full "EU competence" if the constitution is ratified.
Last June, when the Tory spokesman Christopher Chope MP raised Galileo at the Commons transport committee, the junior transport minister David Jamieson again trotted out the Government line that it is only "a civil project". Yet earlier this month, the Council of Ministers' politico-military group recommended that all EU members' civil and military space efforts should be pooled in a joint programme.
Such is the subterfuge that Mr Howarth's well-briefed questions are designed to expose. He has asked for a full statement on the military implications of Galileo; and an explanation of the part that Galileo would play in the EU's planned Future Rapid Effects System (Fres), a satellite-based combat system looked on as the centrepiece of any common EU defence effort.
Last week the commission issued a Green Paper on defence procurement, just one of seven "initiatives" planned to promote that the EU's ambition to become a military "superpower" comparable with the US. If Mr Howarth receives even half-way honest answers to his questions, they may tell us much about how long we can expect Britain's "special relationship" with America to survive.
Still largely ignored by the media, the soap opera of the referendum campaign on John Prescott's plans to set up an elected regional assembly for the North East continues.
On Friday, lawyers for Neil Herron's "North East No" campaign served a High Court writ on Mr Prescott, to force him to correct a leaflet sent to to North East voters that claims that elections to the new assembly will only be by proportional representation. His own Regional Assemblies Bill makes clear that two-thirds of assembly members will be elected on a "first past the post" system.
The Office of the Deputy Prime Minister has already admitted another inaccuracy in the leaflet, understating the cost of reorganising local government in Co Durham. It proposes to remedy this by sending out a corrected leaflet, but only to 200,000 voters in Durham; not to the region's other 1.7 million voters, who are thus being invited to vote on what is admitted to be false information.
The Electoral Commission has also been served an injunction. It failed to check the ODPM's misleading leaflet, and was last week defending its decision to give £100,000 of taxpayers' money to a rival "No" campaign, Nesno (North East Says No), run by the Tories - a party so weak in the North East that it no longer has a anyone on Newcastle council. Since one of Nesno's objections to any assembly is that it will not be given enough powers, it has been dubbed the "Yesno campaign".
The "Yes" campaign was last week boasting of a poll, commissioned by itself, showing a 2:1 majority in favour of an elected assembly; whereas an internet poll run by The Sunderland Echo was showing 94 per cent against. Confronted by such confusion, it seems the "Don't know campaign'' is leading by quite a margin.
EurSoc.com, one of the growing number of internet "blogs" set up to discuss the issues raised by the proposed EU constitution, has been running a poll on the preferred site for a new "EU capital".
Currently topping the charts on 76 per cent is the Falkland Islands.