Clarke to tax share options as income
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Kenneth Clarke, the Chancellor, is being forced into a U-turn over executive share options after clear signals that the Government is preparing to implement the key recommendations of Sir Richard Greenbury's report into top executives' pay.
The Government is now expected to back the recommendation in the report, to be published next week, for executive share options to be taxed as income rather than made subject to capital gains tax.
The recommendation is a concession to Opposition demands which have so far been rejected by the Chancellor. The committee is also expected to meet one other demand - to prevent share options being granted at discounted prices. But Labour had been seeking both moves as part of a sweeping reform programme which the committee has rejected.
Ministers are expected to argue that the shift of policy is closely in line with repeated declarations over the past fortnight that Mr Clarke wants to see the phasing out of capital gains tax.
It will not stop Gordon Brown, the shadow Chancellor, who today reveals another pounds 25m of share option deals for directors and managers in the water industry, claiming that the Greenbury report goes nowhere near far enough to damp down controversy over executive pay between now and the election.
The confirmation in Whitehall that the Prime Minister, John Major, is preparing to accept in full the recommendations of Sir Richard's report, including those requiring budgetary or other legislation, coincides with new evidence of the extent to which Michael Heseltine, then President of the Board of Trade and now Deputy Prime Minister, was the driving force behind the setting up of Sir Richard's committee.
The confidential minute of a private meeting in Westminster attended by Sir Richard after the committee was set up reveals the "initiative did not come from Downing Street although there had been discussions over some months between [Sir Bryan] Nicholson [President of the Confederation of British Industry] and Heseltine and through him the Cabinet."
The minute also discloses that Sir Richard, chairman of Marks and Spencer, was reluctant to accept the politically sensitive job of producing the report, and was only "prevailed upon to accept" after pressure from Sir Bryan, Howard Davies, the CBI's director-general and Sir Michael Angus, the former chairman. Leaks from the committee suggest that one key proposal - to link directors' pay to that of other company employees - was favoured by Sir Richard but he found himself in a minority of one.
Mr Brown will argue today that the committee has failed to give either shareholders or regulators the powers needed to curb executive pay excesses. He will also complain that Sir Richard has not proposed any action to deal with the pounds 100m of outstanding share options awarded but not cashed in.
Gas chief's move, page 16
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