Blair bullish over windfall tax threat

The Labour Party said yesterday that privatised companies would have to pay a windfall tax on their profits despite a new threat that a handful of the firms, including Anglian Water and Eastern Electricity, might challenge the legality of the tax in European courts.

Dismissing the legal threat to Labour's plans, Tony Blair said on BBC1's Breakfast with Frost: "There is not going to be a cash gap. We have had legal advice on this. That is very, very clear indeed. There is no doubt that the excess profits are there."

The Labour leader made it clear that he believed the tax, which could raise between pounds 3bn and pounds 5bn, would prove a vote winner at the election, with the money being allocated to a special fund for tackling long-term unemployment.

Some of the water companies who would pay had been bought from abroad, he said. The campaign against the tax was being mounted partly by the Conservative Party and by the utilities, he added.

A spokesman for the shadow Chancellor, Gordon Brown, said legal experts had advised Labour that the only real possibility of a challenge was through the European Court of Human Rights in Strasbourg, and this was unlikely to be able to proceed. The Strasbourg court has always been wary about accepting cases that involve questions of national tax policy.

Even if some electricity and water companies did go ahead with a challenge, they would have to pay the tax in the meantime.

Referring to a report commissioned by Aims for Industry, a right-wing group, which claimed that Labour was vulnerable on legal grounds, a spokesman for Mr Brown said: "Any conceivable challenge under European law or the European convention would be utterly futile and a complete waste of time and money."

Any possible proceedings under European law could take more than a decade to reach a conclusion, during which the affected businesses would be liable to pay the tax.

Many of the privatised companies have accepted that they will have to pay if Labour wins the general election. Some have started to make financial provisions for it - along with the extra tax levied in last November's Budget from changed rules for the depreciation of investment in long-lived assets.

The privatised companies have started to concentrate their lobbying efforts on the far more important issues of regulation and competition policy under a Labour government. The amounts of money at stake in these areas are far higher than the likely proceeds from the windfall tax.

Labour advisers regard the latest salvo over the tax as another stage in the campaign against it by a hard core of businessmen. The party's intention to introduce it if it wins the election was unshaken by the weekend report from Aims for Industry, written by two eminent lawyers.

Alistair Darling, a Labour Treasury spokesman, said on BBC Radio 4: "We are satisfied there is no possibility of a successful challenge in domestic or European law. We are also satisfied there is no possibility of a challenge under the European convention. People should understand that the windfall tax is not up for negotiation; it is not up for grabs. We intend to legislate for it."