Employees' perk exposes tax red herring

COMMENT

Have you heard of that outrageous pounds 90m a year tax dodge that allows the profits made on exercising share options to be counted as capital gains instead of income? Punters can also fiddle a large chunk of extra tax relief on their profits at the expense of honest taxpayers by registering some of the shares in a spouse's name after exercising the options. The pounds 6,000 capital gains allowance suddenly becomes pounds 12,000. Wait until Gordon Brown gets wind of that.

No, this is not the notorious fat cats' executive option scheme, now part of our national demonology as a result of the profits made by David Jefferies, chairman of National Grid, who transferred some of his shares to his wife to save additional tax.

It is in fact the Inland Revenue's Save As You Earn share option scheme, used by 590,000 employees a year, which happens to be pretty well identical in tax relief terms to the executive share option schemes beloved by our overpaid utility directors.

The scheme gives the same tax saving as executive options. By allowing profits to be counted as capital gain rather than income, they qualify for the full CGT allowance of pounds 6,000 a year. If you make pounds 730,000, like Mr Jefferies, the odd few thousand of tax saved is neither here nor there. Under the SAYE scheme, however, they make all the difference. Somebody who makes a pounds 25,000 profit, as some secretaries, clerks and chauffeurs at Standard Chartered Bank did recently, can avoid paying CGT on the whole lot, by giving half the shares to a spouse, and spreading the sale over two tax years.

Even with the executive schemes, it is not just the fat cats who benefit. The Inland Revenue says there is no reason why firms should not spread the benefits of the executive share option scheme to all employees, and some actually do.

According to a recent survey by KPMG, just over half of companies extend the executive scheme down to middle management, and 14 per cent allow non-management staff in. As many as 80,000 people a year take new options under executive schemes, at a cost to the Treasury of pounds 50m.

The oddity of this whole row is that the few beneficiaries of these tax perks who would not notice their abolition are those at the top, whose enormous windfall gains would dwarf the lost tax benefits.

Mr Brown has in the past acknowledged the fairness of the SAYE option scheme. He should now recognise that the tax issue is a red herring and that what matters is stopping the award of over-generous share options in the first place.

Northern should do the honourable thing

Much energy, anger and expenditure is being incurred on the bid that Northern Electric will not allow Trafalgar House to make. There are principles aplenty involved, but given the length of time it is taking to settle the matter, little else. Northern shareholders meet next Friday to vote on the matter. Dissident shareholders, led by the American arbitrageur Guy Wyser-Pratte, are trying to force Northern directors to agree that Trafalgar House should be allowed to make the new bid, worth pounds 9.50 a share. It is the shareholders' right, not the board's, to decide whether Trafalgar's bid is worth accepting, is the rallying call. The board is resisting on the grounds that present regulatory uncertainty makes it impossible to offer credible counter-proposals as a defence.

Many might reasonably wonder what the whole thing is about as Professor Stephen Littlechild is in any case due to end the regulatory uncertainty by the end of next month by publishing new price controls. Furthermore, it has become quite unlikely that Trafalgar would now actually make the promised bid until it knows the outcome of that review. So even if the dissident shareholders win, it may prove something of a Pyrrhic victory.

The principles involved are nonetheless important; the evidence for this is in the allegations of dirty tricks now flying as both sides limber up for the proxy battle. On almost every point the Northern board falls. It will be interesting to see just how far it is prepared to push the point. Legally, the dissidents need a 75 per cent majority to get their resolution adopted. In practice it would be hard for the board to stand firm with any less than majority support.

The Prudential is wrong in sticking to its usual stance of backing the incumbent management. The Northern board is allowed to refuse Trafalgar permission to put its new bid because takeover rules stipulate that once an offer lapses, the bidder is not allowed back for at least a year. The reason for this rule is that the Takeover Panel judges it to be unfair for a bidder to be allowed to lay permanent siege to a company. This case is different, however. Trafalgar lapsed its first bid because of force majeur, the regulatory review. As a consequence, Northern also lapsed its 24-carat defence, though saying it would try its best to deliver on what it had promised. In these circumstances it seems perfectly reasonable the contest should be allowed to resume at whatever price Trafalgar believes appropriate. Just as Northern doesn't know what it is dealing with until the outcome of the pricing review is known, nor does Trafalgar.

Northern might like to believe that its shareholders want to hang around long enough to see what may or may not be good news for them, but it is hardly the reality of the position. A very substantial number would be very happy to see Trafalgar shoulder the risk. Northern directors have enjoyed all the other benefits that come with private sector ownership. Now they must face up to its other consequence, the discipline of the market.

Hong Kong Scots sweep the field

Thank you and goodbye, Richard Delbridge, the respected finance director of HSBC, who yesterday presided over his last annual meeting at the group before retiring early. Career prospects for former Midland executives, like Mr Delbridge, have been a bit iffy since the bank was taken over. Now the rugby-mad Hong Kong Scots have the whole playing field to themselves. There isn't a Midland Bank man still on the board.

Start your day with The Independent, sign up for daily news emails
ebooks
ebooksAn introduction to the ground rules of British democracy
Latest stories from i100
Have you tried new the Independent Digital Edition apps?
SPONSORED FEATURES
Independent Dating
and  

By clicking 'Search' you
are agreeing to our
Terms of Use.

iJobs Job Widget
iJobs Money & Business

Recruitment Genius: Sales Executive / Foreign Exchange Dealer - OTE £40,000+

£16000 - £40000 per annum: Recruitment Genius: A Foreign Exchange Dealer is re...

SThree: Experienced Recruitment Consultant

£20000 - £40000 per annum + OTE + Incentives + Benefits: SThree: Established f...

SThree: Trainee Recruitment Consultant

£20000 - £25000 per annum + OTE 40/45k + INCENTIVES + BENEFITS: SThree: The su...

Recruitment Genius: Collections Agent

£14000 - £16000 per annum: Recruitment Genius: This company was established in...

Day In a Page

Refugee crisis: David Cameron lowered the flag for the dead king of Saudi Arabia - will he do the same honour for little Aylan Kurdi?

Cameron lowered the flag for the dead king of Saudi Arabia...

But will he do the same honour for little Aylan Kurdi, asks Robert Fisk
Our leaders lack courage in this refugee crisis. We are shamed by our European neighbours

Our leaders lack courage in this refugee crisis. We are shamed by our European neighbours

Humanity must be at the heart of politics, says Jeremy Corbyn
Joe Biden's 'tease tour': Could the US Vice-President be testing the water for a presidential run?

Joe Biden's 'tease tour'

Could the US Vice-President be testing the water for a presidential run?
Britain's 24-hour culture: With the 'leisured society' a distant dream we're working longer and less regular hours than ever

Britain's 24-hour culture

With the 'leisured society' a distant dream we're working longer and less regular hours than ever
Diplomacy board game: Treachery is the way to win - which makes it just like the real thing

The addictive nature of Diplomacy

Bullying, betrayal, aggression – it may be just a board game, but the family that plays Diplomacy may never look at each other in the same way again
Lady Chatterley's Lover: Racy underwear for fans of DH Lawrence's equally racy tome

Fashion: Ooh, Lady Chatterley!

Take inspiration from DH Lawrence's racy tome with equally racy underwear
8 best children's clocks

Tick-tock: 8 best children's clocks

Whether you’re teaching them to tell the time or putting the finishing touches to a nursery, there’s a ticker for that
Charlie Austin: Queens Park Rangers striker says ‘If the move is not right, I’m not going’

Charlie Austin: ‘If the move is not right, I’m not going’

After hitting 18 goals in the Premier League last season, the QPR striker was the great non-deal of transfer deadline day. But he says he'd preferred another shot at promotion
Isis profits from destruction of antiquities by selling relics to dealers - and then blowing up the buildings they come from to conceal the evidence of looting

How Isis profits from destruction of antiquities

Robert Fisk on the terrorist group's manipulation of the market to increase the price of artefacts
Labour leadership: Andy Burnham urges Jeremy Corbyn voters to think again in last-minute plea

'If we lose touch we’ll end up with two decades of the Tories'

In an exclusive interview, Andy Burnham urges Jeremy Corbyn voters to think again in last-minute plea
Tunisia fears its Arab Spring could be reversed as the new regime becomes as intolerant of dissent as its predecessor

The Arab Spring reversed

Tunisian protesters fear that a new law will whitewash corrupt businessmen and officials, but they are finding that the new regime is becoming as intolerant of dissent as its predecessor
King Arthur: Legendary figure was real and lived most of his life in Strathclyde, academic claims

Academic claims King Arthur was real - and reveals where he lived

Dr Andrew Breeze says the legendary figure did exist – but was a general, not a king
Who is Oliver Bonas and how has he captured middle-class hearts?

Who is Oliver Bonas?

It's the first high-street store to pay its staff the living wage, and it saw out the recession in style
Earth has 'lost more than half its trees' since humans first started cutting them down

Axe-wielding Man fells half the world’s trees – leaving us just 422 each

However, the number of trees may be eight times higher than previously thought
60 years of Scalextric: Model cars are now stuffed with as much tech as real ones

60 years of Scalextric

Model cars are now stuffed with as much tech as real ones