BT set to sue over windfall levy

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The Independent Online
BT will mount a legal challenge against the Government if its windfall tax liability is greater than pounds 250m, writes Ian Griffiths.

Senior executives are privately fuming that BT is being brought within the scope of the windfall tax, to be outlined during this week's Budget, but they have agreed that they will only challenge the liability if it is represents a material cost to shareholders.

BT is upset because it was assured privately by Prime Minister Tony Blair, before the General Election, that any exposure to the windfall tax would be minimal.

However, legal difficulties in drafting a framework for imposition of the windfall tax have made it impossible to make any allowance for special pleadings.

Senior Treasury officials are extremely nervous about potential legal challenges to the windfall tax, and they have insisted that it must be applied consistently across the target companies. As the biggest business BT faces the biggest liability.

BT chairman Sir Iain Vallance made his opposition to the windfall tax plain last month when he said he would not have voted for the Labour Party at the General Election if he had thought BT would be hit by the tax.

"If we are stung in a big way for this tax and if it can be challenged legally, we owe it to our shareholders to challenge it," Sir Iain said.

Reports last week suggested that BT could face a liability of pounds 1bn as part of the Chancellor's plans to raise pounds 5bn from the windfall tax. BT regard a bill of that magnitude as unacceptable and will feel obliged to fight it on behalf of shareholders in the courts.

Lawyers representing BT have been scouring domestic and EU legislation and have concluded that their most fruitful line of attack would be to use EU state aid laws to fight the windfall tax. Because Mercury, BT's domestic telephone competitor, will not have to pay a windfall levy lawyers argue that the tax on BT is in effect illegal state aid for Mercury.

BT is not the only company contemplating a legal challenge to the windfall tax. A consensus has emerged among the privatised businesses facing the tax that they will fight its imposition if the amount of the levy is too high.

BAA, the airports operator, which has lost it battle to be excluded, has indicated that despite its doubts about the applicability of a windfall tax it will pay up unless the liability is excessive. However, it has undertaken extensive legal research which would allow it to act swiftly if its tax charge is too high.

One electricity company, which preferred to remain anonymous, said it would mount a challenge if its liability was much in excess of pounds 50m.