Kenneth Clarke was resolutely refusing to admit he had made a gaffe, and insisting he was going ahead with the plan to tax executive share options, in spite of it being disowned by Sir Richard Greenbury, whose committee on top salaries recommended the move.
Mr Clarke has told friends he believes the right wing is out to "get my head" for his support for keeping open the option of a single European currency. The share option debacle could be used to undermine his position.
The Chancellor held a pre-Budget strategy meeting with Treasury ministers and officials at Chevening, the Foreign Secretary's country retreat, yesterday to prepare the ground for possible tax cuts in November.
The tax on share options is expected to raise pounds 80m in the next Finance Bill. However, there is a real threat of a Tory rebellion when it goes before the Commons in the autumn, if the Chancellor has not retreated. A Labour source last night said they would not vote against the Government. "We're going to let the Tories stew in their own juice."
David Shaw, a right-wing Tory MP, and Lord Wolfson, chairman of the Next retail group, yesterday launched a pressure group, called the Campaign to Save Share Options, to force Mr Clarke to change his mind. Others warned it would alienate typical Tory voters.
Bill Cash, a leading anti-Maastricht Tory backbench MP, said: "This is a classic banana skin . . . It doesn't help to keep on saying 'I know I was right to do this'. It was done at very short notice. The intention was to deal with executives who were taking a disproportionate amount of the system. We have ended up by hitting our own people."
Refusing to back down, Mr Clarke said on BBC Radio: "I think it's right . . . Greenbury and his people had tax experts. They spent some months studying this. I can assure them they got it right, even though they don't seem to understand what they recommended.
"I saw Mr Greenbury . . . saying he had got it wrong, but there is a particular form of share option, which instead of being subject to income tax was only subject to capital gains tax."
He said it was not intended that women on supermarket check-out tills, such as Asda employees, should benefit from executive share option schemes when they were introduced.
"Asda were about to introduce a scheme where pounds 6,000 of pay was income tax free. There are a lot of people who don't get a pounds 6,000 bonus tax free, which underlines the anomaly of this particular form of executive share option scheme."
Labour shared some of Mr Clarke's embarrassment, having campaigned for the tax loophole to be closed. Alistair Darling, Treasury spokesman, said: "Kenneth Clarke is now firing shots at random. Right from the start we were saying we were dealing with abuses in the boardrooms, particularly in the privatised utilities. It was never the intention to catch anyone in the middle management."
Business leaders were queuing up yesterday to condemn the Chancellor's decision.
At the annual meeting of Thorn EMI, the music and retail group, its chairman Sir Colin Southgate told shareholders: "It's the most ridiculous thing. It has meant taking it out on junior management and not on those whom they were supposed to go after - the fat cats."
Martin Taylor, vice chairman of Hanson, the Anglo-American conglomerate, was equally scathing: "I think the Government should be big enough to stand up and admit it has made a mistake."
He said that Hanson's employee share ownership scheme included more than 1,000 staff of which only a handful were directors. These people would now be disillusioned, he said.
Few members of the Greenbury committee said anything yesterday. But Sir Michael Angus, the chairman of Boots and Whitbread, defended the report saying that its remit was to look at directors' remuneration and that its proposals were only recommendations, not suggestions on implementation. "I think that on the whole the report has been well received. The share options thing is slightly peripheral to the report."Reuse content