Chancellor offers tax breaks for staff shares options

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The Independent Online

Gordon Brown angered the trade unions yesterday by warning against demanding high wage rises while at the same time offering tax breaks to entrepreneurial executives.

Gordon Brown angered the trade unions yesterday by warning against demanding high wage rises while at the same time offering tax breaks to entrepreneurial executives.

Speaking at the national conference of the Confederation of British Industry in Birmingham, Mr Brown said: "Unacceptably high wage rises will not lead to higher inflation, but to higher interest rates. It is in no one's interest if today's pay rises threatens to become tomorrow's mortgage and interest rate rises."

The tough message on pay was accompanied by an offer of £1m in tax incentives to would-be entrepreneurs. The Enterprise Management Scheme will allow small firms to give share options worth up to £100,000 to 10 employees, free of income tax. The Chancellor said that, under the new rules, someone whose £100,000 of options were worth £500,000 after five years would find their tax bill halved.

Mr Brown decided to adopt the measure after lobbying by capital venturers who said similar tax breaks had fostered an entrepreneurial spirit in the United States.

The Chancellor sought to make a distinction between these incentives and excessive pay awards given to "fat cats". He said: "I want to send a message to entrepreneurs in every part of the country that this Government means the rewards of enterprise are open to all."

The Trades Union Congress criticised the new scheme. "There should be no 'them' and 'us'," said John Monks, the TUC general secretary. "If there are to be tax breaks they should be available to all employees who contribute to the success of the enterprise."

Mr Brown's fiscal initiatives also cut little ice with the CBI. In his opening address, the confederation's president, Sir Clive Thompson, attacked the increased burden of tax and regulation the Government has loaded on to business and criticised the Chancellor for taxing business at the rate of £5bn a year for the five years to 2001. "The Government may point to the cuts they've made in corporation tax. But those were more than offset by the windfall tax, the loss of the dividend tax credit and now the climate change levy.

"And the sums they give back - to help the start-up of new businesses for example - are trivial by comparison. £100m on R&D tax credits, or £140m on temporary capital allowances." Sir Clive also said the introduction of the reduced 10p starting rate of corporation tax would make virtually no difference to the growth of small and medium sized businesses.

Mr Brown used his speech to reassure the CBI he would not relax his tight fiscal discipline with huge tax cuts and spending pledges in the Budget. "I can assure you that the same tough grip will continue," the Chancellor said

He also launched an attack on anti-European factions on both the left and right, saying 3.5 million jobs depended on trade with Europe. Although his attack was primarily directed at the Tories Mr Brown also criticised "old Labour" anti-Europeans.

"I tell you honestly that the Labour Party of the Eighties was wrong and irresponsible to become, contrary to its history, an anti-European party and to ignore the importance of the European connection to our prosperity and employment."He went on to warn the conference about the dangers of dogmatically ignoring the single European currency.

"Others rule out joining forever in the name of political sovereignty even it were in the national economic interest to join," he said. "I say the national economic interest should be the decisive factor."