Windfall tax 'set to raise pounds 5bn for Labour'

Labour's windfall tax on the privatised utilities could raise as much as pounds 5bn and hit a much larger number of companies than previously thought, a report from investment bank Goldman Sachs has warned.

The study forecasts shadow chancellor Gordon Brown will seek to raise enough to finance a five-year employment and training programme with pounds 1bn spent in year one. Previously it had been thought that the tax would raise pounds 3bn at most.

Goldman Sachs, which produced the report after talks with Labour's front- bench Treasury team, also believes that the tax will affect not only the regional electricity and water monopolies and the three big generators but BT, British Gas, the National Grid and the two privatised transport utilities, BAA and Associated British Ports.

The report predicts that the tax will be weighted according to market capitalisation, meaning that BT will come off worst with a potential tax, based on its current share price, of pounds 1.33bn. British Gas, already facing a massive regulatory squeeze that could reduce revenues by pounds 1bn, would meanwhile be hit by a pounds 503m windfall tax.

BAA, which was privatised in 1987 and operates seven airports, including Heathrow, Gatwick and Stansted, would face a tax bill of pounds 297m.

The two big electricity generators, National Power and PowerGen, would be hit with bills of pounds 369m and pounds 192m respectively while Railtrack, privatised two months ago, could find itself paying pounds 123m.

The report also suggests that Labour might try to tailor the tax with harsher treatment for companies that have rewarded shareholders and more lenient treatment of those who have paid customer rebates.

Paul Walton, the Goldman Sachs economist who produced the report, said Labour sources had pointed out that for legal reasons it might not be allowed to favour one company over another which is why the tax might have to be very widely applied.