Brown is stalled by tax row

First Budget may be delayed until July: Blair sympathetic to BT windfall case: VAT on fuel down, mobile phone tax up
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The Independent Online
Chancellor of the Exchequer Gordon Brown has delayed the timing of his first Budget, amid speculation at Westminster that his promised windfall tax on the privatised utilities is running into problems.

The windfall tax will be one of four key measures in his programme, billed as an interim Budget by Labour sources. The other three main reforms are a reduction in the rate of VAT on fuel from 8 to 5 per cent; a tax on mobile phone users and a winding-down of mortgage interest tax relief. Other measures, including an overhaul of corporation tax, are understood to have been put on hold until his first full Budget, due in late autumn.

Mr Brown is determined the windfall tax, intended to raise pounds 5bn to help the long-term unemployed and young people find work, will form the centrepiece of his Budget, designed to mark an end to the "get rich quick" approach encouraged by the previous government.

But ferocious lobbying in Whitehall, involving both the Treasury and 10 Downing Street, has held up the drafting process. British Telecom has mounted a fierce rearguard, threatening legal action and complaining forcibly that British Airways is to be excluded.

The Prime Minister is thought to be sympathetic to BT and British Gas, which has also been defending its corner. Ideally, the companies have argued, the tax should not be on straight profits since privatisation - in which case their bills are huge and the electricity and water companies, which have made far less, will have relatively little to pay.

Rather, BT and British Gas are pressing for the tax to be assessed on total returns to shareholders relative to the FT-All Share Index. Immediately after they were privatised, BT and British Gas produced huge returns for their shareholders but in the last few years their share price performance has been weaker. So, not surprisingly, the two companies are further arguing the tax should be charged on returns made in the last few years - in which case their bills will be relatively small.

As these arguments have been raging round Whitehall, the date for the Budget has been pushed back. Mr Brown is now poised to make a historic change to the day of his speech. Tuesday 10 June - the day of the Tory leadership vote - was originally pencilled in for the Budget, but the date has now been put back by at least a fortnight.

The Chancellor is expected to tell MPs when they return from the Whitsun recess that he intends to move the Budget to a Wednesday, and that it will be at the end of the two-month period of preparation laid down in Labour's election manifesto.

It would be the first time for 30 years that the government has chosen this day of the week, with the exception of a clash of public events in 1980. But Wednesday is now also the day for Prime Minister's Questions, and is rapidly becoming the pivotal day of the parliamentary week.

Because of intensive overseas commitments, the Chancellor is boxed in to only two dates, now that he has decided not to go for 10 June. It seems certain that he will go for 25 June or 2 July.

The latter date would be just outside Labour's manifesto promise of a Budget within two months of the general election, but Mr Brown could plausibly claim that he has so many meetings abroad that it is impossible to deliver his radical "windfall tax" Budget any earlier.

On 8 and 9 June, he is in Luxembourg for a meeting of European finance ministers. From 15 to 17 June there is a European summit in Amsterdam. Two days later he flies to Denver, Colorado for the G7 summit there.