FEAR OF FINANCE

When Mavis Taylor, a long-standing servant of Asda's bakery department, is moved to comment on financial matters - "it's disgraceful ... it's diabolical" - you know it to be serious. And, indeed, it was.

Somehow the Inland Revenue managed to slip its leash this week, savaging hundreds of thousands of taxpayers in an act of wanton fiscal savagery.

For seasoned Revenue watchers, this was one to savour. In one of its "we're not sure who you are but it's curtains, anyway'' manoeuvres, the tax machine homed in on the UK's 250,000-odd share option holders with all the patience of a great white shark among a pack of seal pups.

The point of the offensive was to cut off an overly lucrative line of remuneration for roughly 2,000 of Britain's highest paid directors. That the 248,000 other victims happened to be middle management and workers, some earning little more than pounds 4 an hour, was neither here nor there.

The Revenue did not build up its fearsome tax-gathering reputation by dithering over details when pounds 80m a year in tax is there for the taking.

Thus on Sunday night Mavis, like thousands others, thought she had "a nice little nest egg". By Monday morning the Revenue had swallowed it "with immediate effect".

Some thought "diabolical" and "disgraceful'' was putting it a little mildly. But Mavis (who has an uncanny knack of striking at the heart of the matter) was not finished. "The company gives you something with one hand," she reasoned, "and the Government takes it away with the other." She did not know the half of it.

While the Revenue was gleefully putting paid to the tax breaks on "executive" share options, it emerged that Social Security had secretly managed to claw back about pounds 600m a year from the state earnings related pension scheme in an obscure section of the new Pensions Act.

The issue is so hideously complicated that nobody can be bothered to complain about it even now. But Mavis had better retire by the year 2,000 Those unlucky enough to be still working after the millennium will see their pensions trimmed by an average of 5 per cent. And, like the withdrawal of income tax relief on discretionary share options, the burden will hit the lower paid harder.

By contrast, share options are not complicated - even though they managed to confuse the Government and the Greenbury Committee which examined allegations of excessive pay in the boardrooms.

Before 17 July, Mavis would have paid capital gains tax only if she sold her Asda shares (remember she can make gains of pounds 6,000 a year before paying any tax).

Now she must pay income tax on the benefit if she exercises her option to buy the shares. In effect, it will cost her to hold shares in the company she works for.

But for the big hitters, the pounds 500,000-a-year merchants, the exercise will result in a less-than-devastating 1 per cent increase in tax. Except for Greg Hutchins, of course.

The executive chairman of Tomkins (owners of Smith & Wesson) made a paper profit of over pounds 2m when he exercised share options the day before the announcement.

That's pounds 850,000 in tax that he won't have to pay under the new rules.

The strategy is becoming all all too clear. The state is adamant that it cannot pay the burgeoning welfare bill. The private citizen will have to assume more responsibility for saving for his and her future. On the other hand, any discovery of hidden nest eggs, executive or otherwise, will be severely dealt with.

Mavis might like to consider using "thin end of the wedge'' if interviewed on the matter again. Indeed, if this week's events are taken to their logical conclusion we shall soon see the simultaneous abolition of Serps and tax breaks on personal pension contributions.