Relations between the Chancellor and the irascible Marks and Spencers chairman have been strained since Sir Richard disowned his committee's recommendation to tax the share options, when it became clear such a move would hit middle managers and those on lower incomes.
Sir Richard and his committee will meet Michael Jack, the Financial Secretary to the Treasury, while the Chancellor is absent, campaigning in the by- election, which the Tories are expected to lose.
The Chancellor's decision to be away from his office for meeting increased speculation at Westminster that Mr Clarke is seeking to finesse a retreat, without having to take the blame for the debacle.
Sources close to the Chancellor maintained yesterday that he would not give way on the principle of taxing the executive share options as income.
One Whitehall source said: "Ken is a tough man. I don't see him giving in, but it would be churlish not to listen to what Sir Richard has to say."
With the Government facing a full-scale Conservative revolt, and attacks from all sides in the City, Mr Jack, who is regarded as one of the most mild-mannered of ministers, has made it clear he will be in "listening mode" when Sir Richard and his committee arrive. The committee is expected to press for a compromise to allow a transition period for those on low pay who are hit by the tax.
Sir Richard admitted last week that he had "made a mistake" when the committee suggested that income tax should be paid on all profits from options, and suggested that Mr Clarke had repeated the error. He said the changes had not been properly thought through.
About 50,000 middle managers or shop-floor workers could be hit by the tax on executive share options, Treasury sources said last night.
The Treasury has been told by the Inland Revenue about 200,000 people in total would be subject to the tax on executive share options.
Treasury ministers had asked the Inland Revenue to tell it how many "middle managers" or shop-floor workers, such as Asda check-out staff, would be affected. It was told that about 50,000 with executive share options earned less than pounds 25,000, putting them into the middle manager bracket. The Treasury estimates only about half that number, approximately 25,000 people, would be be expected to exercise their options and would have to pay the tax. But the relatively small number of people who will be hit will not minimise the damage, if a compromise is not reached.
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