Windfall awaits Rec directors

Electricity giveaway: 'Fat cats' hatch controversial tax credit 8 Hanson delays details of share distribution

MARY FAGAN

Industrial Correspondent

A number of regional electricity companies are planning to pay directors windfall tax benefits as part of the pounds 3bn sale of the National Grid Company, fanning the privatised utility "fat cats" row.

The latest embarrassment emerged as a last-minute hitch delayed the scheduled publication yesterday of details of the National Grid flotation. The delay was widely blamed on Hanson, the industrial conglomerate which has taken over Eastern Electricity, holder of about 12 per cent of the grid shares. SEI, the new American owner of Sweb, is also said to be proving obstructive.

There has been speculation that Hanson would try to hang on to its stake in the grid, but the Government has told the group it must sell within a year.

One industry source said the hitch was "technical" and related to the structure of Hanson's shareholding in Eastern Group.

Some of the 12 regional companies which at present own the NGC are planning to pay directors an added cash top-up to compensate for taxation on the grid shares they are entitled to in the float.

The tax payment issue relates to share options held by executive directors in the regional firms and to the sharesave schemes under which thousands of employees save to buy shares.

Option holders and sharesave members will be given grid shares to make up for the fact that shares in the regional companies will diminish in value once the grid is floated off.

In addition, some Recs have determined to pay directors who hold options an extra cash top-up to compensate for tax on the grid shares. Nearly all private shareholders will have to pay tax on the grid shares in the normal way.

Most Recs are rejecting the extra perk as too controversial in the present climate but at least two are said to be planning to push ahead regardless.

The extra payout will further embarrass the Government, coming on top of revelations that electricity executives stand to make millions of pounds from the grid flotation.

Most companies will also compensate employees who are members of the sharesave schemes for the tax on grid shares. One industry executive said: "I reckon that will be considered acceptable." Another added: "It is likely that employees and unions will have something to say if they suffer from any loss in the value of their shares in the company." The sharesave members are mainly ordinary employees but some also include executive directors.

This is the latest in a string of embarrassing revelations over the grid. Earlier this week it emerged that the normal share allocation to existing Rec shareholders as a result of the demerger will be treated as a form of dividend, meaning that those funds and others exempt from tax can claw back money. The issue is sure to enrage many private shareholders who as normal taxpayers will not be able to benefit in this way.

Negotiations over the demerger of the grid have been dogged by disagreement between the 12 companies and the Government and within the industry itself, exacerbated by massive benefits it will generate for executives.

The Labour Party has called for the flotation to be delayed pending an investigation into the issue. On Thursday Gordon Brown, shadow Chancellor, also warned that the Government could make a net loss on the flotation because of a series of intricate tax concessions totalling hundreds of millions of pounds.

An added embarrassment for ministers is that directors of the NGC will benefit hugely from a special dividend payable to the 12 regional companies before the flotation. This special dividend, thought to be worth between pounds 800m and pounds 900m, was intended to compensate the companies for a pounds 50 rebate to be given to customers and for the amount of tax levied on the flotation by the Government.

David Jefferies, chairman of the National Grid Company, stands to make pounds 190,000 from the dividend payable on his shares, while three other directors will get payments of pounds 125,000 between them.

Their decision to take the profit is known to have incensed Tim Eggar, Minister for Energy and Industry, and also angered executives in some of the 12 regional firms. The issue marred the policitical victory claimed by ministers over the pounds 50 customer rebate, which had been strongly resisted by the companies.

A spokesman for National Grid said that 500 individuals below board level in the company also owned shares and "are legally entitled to the dividend".

Comment, page 25

Tax plan to enrich the directors

Shares in the National Grid, owned by the 12 regional companies, to be distributed among their shareholders. When this happens, shares in the Recs can be expected to fall as the value of the grid is removed from them.

Share option holders in regional companies, including directors, to be compensated for loss of value that occurs as a result of the grid flotation.

Compensation will be paid in grid shares held back from distribution and paid to option holders next year.

Distribution of grid shares will be treated as a dividend for tax purposes. Unless they are tax exempt funds such as pension funds, all shareholders will have to pay tax at a minimum basic rate of 25 per cent.

Some Recs have undertaken to compensate for this tax with cash payments to option holders.

Two or three Recs are planning to extend this principle to director option holders who may then get a 40 per cent tax credit, paid for by their companies, on top of their grid share entitlement.

Suggested Topics
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

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...

SThree: Trainee Recruitment Consultant

£20000 - £25000 per annum + OTE 40k: SThree: SThree are a global FTSE 250 busi...

Day In a Page

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
Theme parks continue to draw in thrill-seekers despite the risks - so why are we so addicted?

Why are we addicted to theme parks?

Now that Banksy has unveiled his own dystopian version, Christopher Beanland considers the ups and downs of our endless quest for amusement
Tourism in Iran: The country will soon be opening up again after years of isolation

Iran is opening up again to tourists

After years of isolation, Iran is reopening its embassies abroad. Soon, there'll be the chance for the adventurous to holiday there
10 best PS4 games

10 best PS4 games

Can’t wait for the new round of blockbusters due out this autumn? We played through last year’s offering
Transfer window: Ten things we learnt

Ten things we learnt from the transfer window

Record-breaking spending shows FFP restraint no longer applies
Migrant crisis: UN official Philippe Douste-Blazy reveals the harrowing sights he encountered among refugees arriving on Lampedusa

‘Can we really just turn away?’

Dead bodies, men drowning, women miscarrying – a senior UN figure on the horrors he has witnessed among migrants arriving on Lampedusa, and urges politicians not to underestimate our caring nature
Nine of Syria and Iraq's 10 world heritage sites are in danger as Isis ravages centuries of history

Nine of Syria and Iraq's 10 world heritage sites are in danger...

... and not just because of Isis vandalism
Girl on a Plane: An exclusive extract of the novelisation inspired by the 1970 Palestinian fighters hijack

Girl on a Plane

An exclusive extract of the novelisation inspired by the 1970 Palestinian fighters hijack
Why Frederick Forsyth's spying days could spell disaster for today's journalists

Why Frederick Forsyth's spying days could spell disaster for today's journalists

The author of 'The Day of the Jackal' has revealed he spied for MI6 while a foreign correspondent