Industry digs in on windfall tax

The privatised industries are preparing contingency plans to counter any threat by a Labour government to extend its windfall tax into a more permanent tax on excess profits.

A high profile campaign taking "back door taxation" as its theme will be launched if the Labour Party is tempted to stray from its commitment to a one-off charge.

Although Labour has insisted that the tax would be a one-off windfall, there has been speculation that it could be extended into an annual charge.

That speculation has been fuelled by the absence of any precise detail on how much would be raised from which companies and on what basis.

According to Nikko Europe Gordon Brown, the Shadow Chancellor, believes the tax could raise as much as pounds 10bn against the pounds 5bn maximum suggested by Tony Blair.

If the larger figure were to become the official target it could be levied over a period of three or four years.

It has been suggested that the Labour Party has been encouraged to consider more regular tax-raising from privatised industries because of the lack of opposition to the notion of a windfall charge.

Although there was some initial resistance to a windfall tax this has fizzled out as the companies became resigned to its imposition. Many businesses took the view that it would be better to take the pain of the windfall tax quietly rather than antagonise a new government by a high profile campaign against the tax.

However, some utilities are now admitting privately that they will aggressively attack any plans to make the taxation more permanent.

"Our shareholders will expect us to fight," said one water industry source.

A campaign against the extension of the windfall tax would be orchestrated through a representative body such as the Confederation of British Industry.

Such a campaign would emphasise that the bill would ultimately be picked up by the consumer.

The privatised companies will point out that the only way they could pay the extra tax would be by higher charges, reduced services and investment or a cut in dividends which would hurt pensioners.

Plans are also in place to resort to the courts to challenge the legality of a permanent tax. The campaign will also be taken to the US where American companies which have invested heavily in the electricity sector will press the Clinton administration to impose retaliatory taxation on British investment.