Tory MPs urge Clarke to consider windfall tax

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Speculation that the Chancellor may be planning to steal Labour's thunder and introduce a windfall tax on the profits of privatised utilities was fuelled last night when Sir Marcus Fox, chairman of the Tory backbench 1922 Committee, said he "would not object" to such a move.

A windfall tax would be an embarrassing U-turn for Kenneth Clarke, but Tory MPs believe it would be a popular move after widespread criticism of the utility chiefs' pay rises and would help to fund income tax cuts.

The Tories last imposed a windfall tax on banks in 1981 when the then Chancellor, Sir Geoffrey Howe, imposed a pounds 400m levy in his Budget.

Sir Marcus said on Channel 4 News that the Government should consider imposing the windfall tax in the November Budget after Gordon Brown, the shadow Chancellor, stepped up demands for a one-off pounds 3bn tax.

But Nicholas Budgen, a Tory member of the Treasury select committee, condemned Lab-our's proposal as retrospective taxation that would deprive current shareholders, many of whom had not benefited from the utility companies' profits.

Mr Brown said the water companies had paid pounds 107m in corporation tax on profits exceeding pounds 7.8bn - a tax rate of 1.3 per cent - as a result of tax breaks given by the Government as a privatisation sweetener. The latter included pounds 3bn in investment credits, in addition to pounds 6bn of debt written off and a pounds 1.4bn "green dowry".

No mainstream corporation tax had been paid since privatisation by Yorkshire Water, currently seeking a drought order, South West Water, North West Water or Thames Water, Mr Brown said. The Shadow Chancellor, who is holding informal talks with the regulators, hinted that Ian Byatt, the regulator for the water industry, could take action on the water industries' profits.

"I understand the water regulator is very concerned about the position of the companies. Despite all the promises, they are making profits at the expense of cutting investment. I would not be surprised if they were told by the water regulator this is a situation he cannot allow to continue," Mr Brown said.

However, a spokesman for Mr Byatt's office said: "The regulator would not start thinking about tax takes. The decision is a matter for the Government."

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