Prescott refuses to spell out his windfall tax

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The Independent Online
Labour last night refused to elaborate on how many of the privatised utilities would be included in its planned windfall tax, or how much cash the party intended to raise, in a Commons debate on the policy brought by the Conservatives.

However, in a typically tough performance John Prescott, Labour's deputy leader, pledged that no consumer would face bigger bills. He was responding to claims by Michael Heseltine, the Deputy Prime Minister, that consumers, shareholders and workers in the companies would all be adversely affected.

During his speech Mr Prescott was asked several times by Kenneth Clarke, the Chancellor of the Exchequer, whether or not British Telecom would be one of the privatised firms required to pay the tax. However, he declined to give further details, beyond saying that the list of companies affected would be outlined in Labour's first Budget.

He also reiterrated that no final decisions would be taken until the shadow Chancellor, Gordon Brown, had consulted with the industry regulators.

Flanked by Mr Brown on one side and Alistair Darling from the Party's Treasury team on the other, Mr Prescott made it clear that Labour was as committed as ever to the principle of the tax.

He told MPs: "The privatised utilities were sold off cheaply, regulated weakly and were allowed to make excess profits. Labour intends to raise a levy to put people back to work."

His speech kept former state-owned companies such as BT guessing about Labour's precise definition of a "utility".

Mr Prescott would only say that the tax would apply to "privatised utilities which have made windfall profits" and "all will be considered without fear or favour".

BT has consistently argued that it cannot be classed as a utility because the British phone market has for several years been exposed to full competition.

However he conspicuously failed to use the word "monopoly" in this definition. Earlier, Mr Heseltine had taunted Labour with a letter from Alastair Campbell, Tony Blair's press secretary, which was published in The Independent recently. It had suggested that the tax would only apply to "privatised monopoly utilities". PowerGen, the electricity generator which faces competition in the UK electricity market, had claimed this meant that it would be excluded.

Labour responded to Conservative jibes by quoting from the 1981 Budget speech by the former chancellor, Geoffrey Howe, when the first Thatcher government announced a one-off levy on windfall profits made by the banks. He claimed the wording on that policy was almost the same as Labour's current proposals.

Opening the debate, Mr Heseltine had attempted to expose what the Tories believe is Labour's vulnerability on the issue, describing the proposals as "an act of vicious political spite."

He continued: "Behind the windfall tax there is a bill, a real bill ... this isn't a levy on utilities, it's a tax on everybody who lives in this country."

He suggested Labour would have to use political interference in the work of the regulators to try to stop prices going up to compensate for the money taken away. In addition, share prices in the taxed companies would fall, affecting millions who held shares directly or 10 million more who held pensions which were indirectly invested in utility shares.

Mr Heseltine defended the record of privatisation which he insisted had brought huge benefits to customers in lower prices. He also said most of the industries involved were increasingly becoming exposed to competition. "When Labour talk about monopolies they totally fail to understand the revolution in competitive practices which is sweeping the world's markets," he said.

The claims were labled as "hypocrisy" by Mr Prescott, who cited the occasion last year when pounds 4bn was wiped off electricity share prices after Professor Stephen Littlechild, the regulator, changed his mind about the level of price cuts he intended to levy on the regional power companies.

Labour also stated that consumers would not face price increases as a result of the tax because charges were already capped by the industry watchdogs.

The attack on the proposals was later joined by Malcolm Bruce, the Liberal Democrats' Treasury spokesman, who agreed with the Conservatives that millions of small investors would be hit.

"It simply isn't honest to say it's a victimless tax ... it is naive to believe there are no impacts and no one would be affected."

Winding up his speech Mr Prescott had argued that there was no longer any serious debate about whether excess profits had been made by the utilities. Referring to the huge share price gains made since privatisation, he said: "There is a mass of evidence

A Labour amendment supporting the levy was defeated by 254 votes to 212.