Bid to avert relocation tax blow: Industry warns that restricting relief will cost jobs. Russell Hotten reports

BRITISH industry will make a final bid this week to kill off Budget proposals that it claims could add up to pounds 850m to the cost of relocating employees.

Critics are believed to have won the support of the Department of Trade and Industry, which is said to be 'very concerned' and plans to press the Treasury to rethink its proposals.

On Thursday, a delegation including the Institute of Directors and business leaders will meet Stephen Dorrell, financial secretary at the Treasury, to voice objections to plans to restrict tax-free moving expenses to pounds 8,000. The discussions follow strong lobbying from Barclays Bank, the Vauxhall motor group, British Aerospace, building groups Costain and Blue Circle, and Halifax Building Society.

Business says that limiting tax relief on relocating staff will lead to redundancy rather than redeployment. It claims the extra expense would force companies to discriminate against moving employees with families - more costly than relocating staff who are single.

Barclays, which moves between 400 and 1,300 staff a year, estimates the average cost of moving each employee at pounds 25,000. A spokeswoman said: 'The extra expense would have to be borne by the company, which, like many others, is trying to reduce costs. There would be a serious implication for our strategy and employment.'

In a survey of 171 companies, to be published this week by the relocation specialist PHH Homequity, 86 per cent of respondents said the changes would restrict mobility and 72 per cent said they would harm career development. A further 25 per cent claimed they would cause redundancies.

Anger has not been eased by suggestions that government departments, which are planning a series of moves out of London, may get special treatment. 'We believe that the Government is planning one law for itself and another for industry,' said an opponent. Neither the Treasury nor the Inland Revenue would comment, each saying it was a matter for the other.

At present, there is no limit on reasonable expenses for relocations, which total about 100,000 each year. The Government estimates it would save pounds 250m a year in tax subsidies, although the accountancy firm Ernst & Young believes the true figure is more like pounds 850m, leaving industry to make up the shortfall. Whatever the figure, the Treasury says, it is unreasonable to expect the taxpayer to pick up the bill for removal costs.

Critics say the proposals are simply a way to save money. One source said the Revenue admitted to him that its research into relocation costs was limited and that the pounds 8,000 ceiling was an 'entirely political figure'.

Blue Circle, which spends about pounds 1m a year on relocation, said it needed staff who were mobile; any restrictions would harm employment levels. If tax relief must be capped, pounds 25,000 would be a more realistic figure, a spokesman said. Opponents also want any ceiling to be phased in, as many decisions to relocate have been made that would not be implemented until after any changes came into force next April.