Clarke steps back from attack on share options

Click to follow


A partial retreat by Kenneth Clarke was in progress last night after a meeting at the Treasury with the Greenbury committee, which left it to the Chancellor to defuse the row caused by his dawn raid on share options.

But right-wing Tory MPs last night were preparing to warn the Chancellor at a meeting in his room in the Commons that his climbdown had not gone far enough. They called on him to withdraw the tax plan, or face a defeat in the Commons in the autumn.

Downing Street and the Treasury were working on the details after the Greenbury committee left the Treasury last night virtually washing its hands of the problem. The committee, headed by Sir Richard Greenbury, chairman of Marks and Spencer, left it to the Chancellor to find a way out of the debacle after its meeting with Michael Jack, the Financial Secretary to the Treasury.

The committee said in a brief statement that it had reaffirmed its support for taxing executive share options but said it had intended it to apply only to directors, not to middle managers and check-out workers at Asda, who will be hit by the Chancellor's dawn raid on the schemes. The Treasury said it welcomed the fact that the committee had reaffirmed its recommendations.Signalling a compromise, Mr Clarke said he was ready "to look at any sensible options". But the Downing Street policy unit, which the Prime Minister has asked to look at ways of resolving the problem, has agreed with the Treasury there is no easy way out.

"There are no simple solutions," said one Downing Street source. "Whatever the politics, we are not in a position to roll the clock back because there has now been too much publicity, particularly of the Asda scheme. There could be a lot of other companies wanting to give their employees a tax-free slug of income. You could see this loophole ballooning. It is quite a difficult issue." Fears that the loophole will be widened are likely to rule out the favoured option of setting an income threshold of pounds 25,000 a year before the tax would bite, to catch only the higher earners, or a value threshold on the share options before they could be taxed. A suggestion by the Greenbury committee that a transitional period should be allowed before the tax takes effect is being considered.

The most likely course is that Mr Clarke will stick to his principle of taxing the executive share schemes, but will beef up the attractions of other approved share option schemes, to encourage more firms to invest in them.

The Chancellor's refusal to back down over the principle of taxing the share option schemes as income left him facing the threat of a Tory rebellion and possible government defeat on the Finance Bill.

David Shaw, the Tory MP leading the campaign to stop the tax hitting middle-income managers and employees, will tell the Financial Secretary today that the hints of retreat have not gone far enough.

The Tory right-wing 92 Group warned the Chancellor that middle managers and check-out staff who take up share options "are the kind of people a Conservative government should encourage". Taxing the value of these options ran totally counter to the Tory philosophy, they said. The Thatcherite group said unless there was an exemption from tax granted up to a value of pounds 80,000 on the share options, it was unlikely to get through the Commons.

Archie Norman, chief executive of the Asda supermarket group and one of the fiercest critics of the Greenbury tax changes, condemned the Chancellor's failure to act yesterday. "The Chancellor is trying to save face, and not produce good legislation,'' he said. "It did not take him very long to act after publication of the Greenbury report. He could act as quickly again."

Another View, page 14