Gas chief's pounds 205,000 pay rise embarrasses ministers

The Government was last night fighting to maintain the credibility of its privatisation policy in the face of a fresh outcry over a pounds 205,000 pay increase for Cedric Brown, the chief executive of British Gas.

In an urgent effort to dispel confusion over the Government's response, Michael Heseltine, President of the Board of Trade, said the market or the shareholders could exercise restraint over the pay rises for board members and the chief executive, whose pay will go up from pounds 270,000 to pounds 475,00 a year.

The prospect of shareholders stepping in to stop the pay rises was treated with scorn by Opposition leaders and trade union officials, who denounced the increases as ``obscene''.

The rises compounded the Government's deep discomfort over the leaking of a report to the Prime Minister written by John Maples, deputy chairman of the Conservative Party.

He warned not only of the unpopularity of privatisation - setting out ways of recovering the position, including using Tory ``yobbos'' to attack Tony Blair - but declared: ``Excessive executive pay packages, especially in the privatised utilities, cause real offence.'' Moving on to territory already occupied by Labour, Mr Maples also called for increased taxation of executive share option schemes.

The pay rises flew in the face of the call for pay restraint last week by John Major. Mr Heseltine initially appeared to defend the increases, saying: ``We turned a soggy, overmanned inefficient nationalised industry into a world-class company.''

Later, Mr Heseltine sought to smooth the differences. He told MPs: ``The Prime Minister has explained the Government's view on this matter many times. The Government believe it is necessary to exercise restraint. Restraint will be exercised by the market or by shareholders but where there are increases in remuneration above the level of inflation, they have to be paid for

by productivity, by rising

profitability.''

Jeremy Hanley, the Conservative Party chairman, admitted on Channel 4 News that the pay rises were ``insensitive'', saying: ``I have no doubt there will be much criticism not only from the grassroots but also from Parliament about that decision.''

One Tory backbencher, Sir Andrew Bowden, told BBC Radio 4's The World at One: ``It is way, way over the top . . . . The Prime Minister has urged people to be moderate and reasonable in these increases and this has been openly flouted - I regret it deeply.''

It also fuelled protests about the profits of privatised companies, after price rises of 2.9 per cent last week led to Labour demands for the regulator, Ofgas, to act. Jack Cunningham, shadow Trade and Industry Secretary, said Labour would table proposals to give Ofgas power to curb executive pay during the passage of the Gas Bill, which breaks up the British Gas monopoly.

The row over the pay rises came as senior Tories struggled to limit the damage inflicted by the leak of what Central Office continued to insist was a ``draft'' of Mr Maples' report, which admitted that many disaffected Tory voters believe ``the rich are getting richer on the backs of the rest''.

Tory unrest, page 2

Anger at gas pay, page 3

View from City Road, page 17

Leading article, page 21

Andrew Marr, page 23

(Photograph omitted)