Sir Richard Greenbury, who led the CBI's investigation into boardroom salaries, said his committee had "made a mistake" when it suggested that income tax should be paid on all profits from options and indicated that Kenneth Clarke had repeated the error.
Sir Richard revealed yesterday that he was one of a minority of two on the committee in opposing the recommendation, which would hit thousands of middle managers.
The pounds 809,000-a-year Marks & Spencer chairman's remarks sent tremors through Whitehall and led to urgent meetings at the Treasury amid signs Mr Clarke could be forced into a humiliating reversal of a policy he announced only last Monday.
Last night the Chancellor made clear he was determined that the tax changes would go ahead as planned. He was described as "extremely annoyed" by Sir Richard's behaviour.
He may seek to lay the blame on Sir Richard's committee, but he was also under attack for acting without realising the full effect of the tax. "It's typical of Ken to shoot from the hip. He never reads the small print," said one Tory source.
Mr Clarke was also under pressure from industry to drop the tax changes. The Confederation of British Industry and the Institute of Directors, which on Monday backed the Greenbury report, have called for a rethink after being deluged with protests.
Sir Richard's rumbustious performance at the Commons employment committee ended with him donning an apron bearing the words of Harry S Truman: "If you can't stand the heat, get out of the kitchen."
He in effect accused the Chancellor of basing his decision on a leaked version of the committee's report. Mr Clarke told Sir Richard on Sunday that he was going to change the tax rules, while the document suggesting the policy was only available from 6am on Monday. Sir Richard reminded MPs yesterday that versions of the report were published in the press over the weekend and so if the Chancellor had received one "he was in good company".
Sir Richard said such leaks did not occur in his company. "Perhaps I'm too naive and too honest and too open." Responding to criticisms that middle managers on modest salaries would be hit along with the highest- paid directors, Sir Richard sent a letter to the Chancellor yesterday urging that such profits should be taxed at the higher rate only above certain levels.
In the letter, Sir Richard suggested that profits below pounds 25,000 to pounds 30,000 should only be subject to capital gains tax, with the first pounds 6,000 of gain tax-free.
Asked whether the Chancellor would respond favourably, he said: "I know him to be a reasonable man. I hope and believe he will do so. If he chooses not to, I can't do any more."
Sir Richard expressed exasperation at his portrayal as a "fat cat" and the harassment his family had suffered from the media.
Asked whether he would continue his work on the committee, he said: "After the last six months I've had enough." He added: "I don't like being caught in the crossfire between politicians."There had been nothing in it for him and his colleagues except "hard work and a great deal of slagging off".
Invited to agree that there was no real distinction between privatised utilities and other companies, Sir Richard said there were "major differences". They were not subject to the same degree of competition, and earnings on the boards of privatised companies had "gone over the top in some cases". The 70 per cent pay rise enjoyed by Cedric Brown, the chief executive of British Gas, could have been handled more sensitively, but the principle of increasing basic salaries was sound.
At Marks & Spencer, directors' earnings went up in line with those of their staff, he said. Sir Richard's salary had risen by 11.5 per cent over the past two years including bonuses, while the average for all employees was 9.5 per cent. But some had received as much as 16 per cent.
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