Chief Political Correspondent
The Chancellor last night rejected the call by Sir Richard Greenbury for a reversal of his hurried decision to tax all share options in spite of growing demands for a U-turn.
After an emergency meeting with officials to decide how to act over the debacle, Kenneth Clarke angrily replied to a letter by Sir Richard dismissing his appeal not to go ahead with the tax plan.
Barely hiding his contempt for Sir Richard's change of mind, Mr Clarke said: "You agree executive share options should be given income tax treatment. That is what I have done. Your concern seems to be with those employees whose company has chosen to use executive share options to reward the more junior staff.
"One has to ask why have they chosen to do so? Is it really to provide rewards linked to performance or is it to take advantage of a tax break? I do not believe that the tax system should determine the choice of remuneration. Good corporate practice should do that."
The Chancellor said if a company did want to provide options for all its employees it could use approved SAYE option schemes or a profit-sharing scheme. Under an SAYE scheme an employee could build up to pounds 17,250 of tax-free lump sum to fund the exercise of options. Under a profit-sharing scheme, an employee could receive free shares from the employer tax-free worth up to pounds 8,000 a year, Mr Clarke said.
He imposed the tax with immediate effect before the Greenbury Committee was published. It will be implemented retrospectively in the next Budget, but the pressure on the Government was so intense, sources at Westminster believed it was likely it would not go ahead until Mr Clarke dug in his heels.
A campaign to abolish the tax plan will be started today by David Shaw, a prominent right-wing Tory MP, and member of the back-bench Finance Committee.Reuse content