Windfall tax could trigger trade war with US

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Labour could spark a massive trade war with the United States if it wins the election and brings in its promised pounds 10bn windfall tax on privatised utilities.

The heads of power corporations in the US, which own many of the electricity companies in the UK, are canvassing each other and political heavyweights in Washington about the possibility of a retaliatory tax or financial sanctions against British firms doing business in the States.

The US firms would call for legislation that would extract as much money from UK companies as they themselves lost to Gordon Brown's windfall tax.

Senior executives at three electricity companies have confirmed to the Independent on Sunday that they or their parent companies have been sounded out about the tit-for-tat move.

News of the plan will give a severe jolt to Labour, which has put great store by what it sees as a popular and legitimate assault on the gains of the privatised utilities. Intended to boost youth employment and training, the windfall tax is a key part of Labour's election manifesto and one of its few new revenue-raising measures.

Texas-based Central & South West Corporation, which owns Seeboard in the UK, is said to be at the centre of the US resistance. The company has ties with some of the most influential figures in Washington, including Bill Archer, chairman of the powerful Ways and Means Committee, Dick Armey, majority leader of the House of Representatives, and Senator Phil Gramm.

"Central & South West have decided it is time they take a Texan attitude to life," said a source at one of the UK electricity suppliers. He said that his chiefs in the US were "aware Central & South West are mounting a big operation".

John Weight, Seeboard's managing director in charge of distribution, said his parent company was not by nature confrontational but was "aggrieved at the proposition of such a tax". He said there was "ongoing dialogue" about the windfall tax between Central & South West and Washington.

Asked again about the prospect of a US tax, Mr Weight would only say: "There is a discussion on all sorts of matters which goes on between these companies, and it would surprise me if it did not come up. Anything we have to say or do has to be carefully considered; that is not to say there is not dialogue and discussions going on."

US firms feel particularly angry because, they maintain, they did not benefit from any windfall. On the contrary, they claim, it was the generous prices they paid to buy the UK companies that resulted in windfalls for the shareholders.

Washington insiders believe President Clinton is unlikely to intervene. The President, they say, would not want to be seen to be forcing the US companies to climb down.

The US attitude has hardened since a meeting late last year between representatives of the companies and officials at the US Embassy in London. Since then, as Labour has shown no sign of backing off, they have been talking regularly.

Not all the US companies are determined to resist the Labour tax. Jim Rogers, head of Cinergy Corporation, which owns Midlands Electricity, said: "Our view is that the tax will happen if Labour is elected. Therefore, the issue to us is to have a positive dialogue if it is implemented in a fair and sensible way. The UK and US have always had a good trading relationship and it is important that it should continue."

Jerry Hunter, external communications chief for Central & South West, said there was no "formal effort to promote retaliatory legislation in the US Congress." His company, he said, was "concerned about the windfall tax and watching it closely".