In a declaration which surprised even fellow directors, Sir Iain also revealed he had voted Labour at the last election, adding he would not have done so had he believed BT would be included in the tax.
"I for one would not have voted Labour if it had been in the manifesto," he said as BT revealed annual profits of pounds 3.2bn, a 4.7 per cent increase on the year before. Government sources said they were astonished by the outburst, which showed "political naivety".
Asked to confirm how he had voted, Sir Iain said "Labour", adding that it was not the only occasion he had supported the party in an election. Robert Brace, BT finance director, said it was the first time he had heard Sir Iain reveal his political affiliations in public.
Sir Iain insisted BT had received no indication from the Treasury whether it would have to pay the tax. "We have had no discussions with the Government. It is a long step from being considered to being taxed."
However he made clear that BT would use the legal system to fight the policy, to be included in next month's budget, though it was too early to say whether this would be in the UK or through the European Court.
"No Labour spokesman or minister has referred to BT in the context of the windfall tax. There's been no statement before the election and therefore the Government was not mandated to tax BT.
"It would be the fiduciary duty of the BT board to challenge this in the courts and we would not hesitate to do so."
Sir Iain denied his attack was linked to other issues under discussion with the Government. BT has offered to connect schools to the information superhighway for free and was hoping for an early end to the ban on broadcasting entertainment down its phone lines. It also wanted the go-ahead to buy the 40 per cent of the Cellnet mobile phone network it does not already own.
Sir Iain insisted BT's relations with the Government would not be damaged by the intervention. "It would be peevish to take our ball away and we wouldn't do so," said Sir Iain. He said the issue was "a storm in a teacup".
Labour's most recent policy statement, before the poll, appeared to widen the tax base to include BT, airports operator BAA and Railtrack. Gordon Brown, now chancellor, said the tax would apply to "privatised companies that are licensed and regulated by statute".
BAA supported the attack last night, confirming it was taking legal advice on the tax. Des Wilson, BAA director, said: "Frankly the way we have been allowed to be included in the speculation about the tax is unfair and verges on irresponsibility." Estimates of BT's liability vary widely. Soon-to-be published research on the tax by the London Business School (LBS) has suggested BT could pay pounds 1.1bn, based on a pounds 5bn tax levied on shareholder returns in the three years after privatisation. Using the same timescale Goldman Sachs, the US investment bank, suggested the figure would be pounds 318m. Both groups agree that on other measures BT could pay nothing, because recent returns for investors have been disappointing.
Sir Iain repeated yesterday that BT was no longer a utility. "We're not a monopoly, we're not a utility. To line BT up with the monopoly utilities for punishment in my view would be quite perverse." Though the UK phone market has been open to full competition since 1991, BT has held onto most of its customer base. It still has 91 per cent of residential telephone lines. Last year its number of residential lines fell by 110,000 to 20.4 million, mainly due to competition from cable companies. Turnover from international calls fell by 16 per cent during the fourth quarter of last year to pounds 416m. However operating profits in the same period rose by 19.6 per cent to pounds 695m, reflecting lower redundancy costs.
Martin Siner, economist with LBS, said BT's defence was largely irrelevant. "The argument has no impact because in the past, when the windfall gains were made, BT wasn't exposed to the same level of competition."
British Gas, renamed BG, also declined to rule out a legal challenge as it announced a 23 per cent fall in current cost pre-tax profits in the three months to the end of March, to pounds 711m. "It's just speculation about what anybody would do. We need to see the legislation," said Philip Hampton, finance director.
ScottishPower yesterday sought to contrast its less public opposition to the tax, refusing to comment beyond insisting that any dialogue would be made directly with the Treasury.
The group announced a 38 per cent surge in annual profits to pounds 558.4m before tax. Ian Russell, ScottishPower's finance director, said the company was in talks with several non-utility businesses about expanding its domestic gas operations.