BT May Challenge Windfall Tax In Court

The privatised airport operator BAA has backed BT's threat, accusing the Government of verging on "irresponsibility" for its handling of the issue.

One of Labour's commitments is to introduce legislation early - in a budget probably next month - to tax what it regards as the excessive profits of certain utility companies privatised under the Conservatives.

Figures announced on Thursday show that BT made a pre-tax profit of £3.203 billion in the last financial year, £200 million more than in the previous year.

BT's chairman, Sir Iain Vallance, told BBC Radio's Today programme: "If we are stung in a big way for this tax, and if it can be challenged legally, then we owe it to our shareholders to challenge it, and we would do that.

"We challenged the previous government in the courts in Europe and won, and we would have no second thoughts about doing it with a new government, although we would be very sad to start a partnership with Labour on that footing."

BT says it is not making excess profits and that it is neither a utility nor a monopoly.

The same argument has been put forward by the Association of Electricity Producers, which represents the electricity generating companies.

Scottish Power, which also owns the regional electricity company, Manweb, and Southern Water, saw its profits rise by more than a third today but said it was not resigned to paying the windfall tax. However, it said that its preferred way forward was through consultation with the Government.

BT says the Treasury received £1 billion in corporation tax for the latest year and has had £10 billion since privatisation in 1984. The company claims the Government has received a total of £51 billion from it and its customers since then.

For its part, BAA defended its own record in creating jobs and keeping profits down. It had been damaged by continuing rumours over whether it would be subject to the levy or not.

Kenneth Clarke: "I'm not surprised"

"We have also suffered media speculation about the windfall tax, yet, like BT, we are not a utility, not a monopoly, and have not had excess profits," it said in a statement. "We have also made it clear to the Treasury that we would not expect to be included and we are also taking legal advice on the matter."

The Prime Minister, Tony Blair, said the Government had a programme and was going to carry it out because it wanted people to know that it kept its promises.

Whitehall sources say they are confident any legal challenge would fail. There's said to be anger among Labour MPs at Sir Iain's intervention. They're asking whether he's forgotten already that the tax was one of the main planks of the Government's economic programme, and it was elected with a huge majority.

But the former Chancellor, Kenneth Clarke, said he wasn't surprised at events. He said the policy was always bound to run into difficulties - and would be damaging for the British economy.