Tax break could give bankers millions

TONY BLAIR was accused of creating new Labour "fat cats" last night after it emerged that partners in a city merchant bank and even the Paymaster-General could gain millions from the tax reforms of the Chancellor, Gordon Brown.

The 34 United Kingdom partners of Goldman Sachs could be collectively pounds 500m better off if they hang on to their shares in the bank for 10 years after it is floated on the stock market, a financial analyst has calculated. One of the partners is Gavyn Davies, an adviser to the Chancellor.

Geoffrey Robinson, the Paymaster-General, could get a pounds 2.1m tax break if he chose to sell his company, Transtech, in 10 years' time, plus a further pounds 1.5m if he sold his five homes.

The changes, announced in the March Budget, were denounced by MPs from all parties yesterday for penalising small business owners while helping the very rich. Under the new rules, entrepreneurs and shareholders pay progressively less capital gains tax (CGT) if they sell up, from 40 per cent down to 24 per cent over 10 years. Those who own more than 5 per cent of their companies can reduce the tax bill to 10 per cent. However, small business owners who sell up on retirement will now have to pay tax on their gains, instead of only on those worth more than pounds 250,000.

Paddy Ashdown, the Liberal Democrat leader, told Mr Blair at question time that the reform would benefit a few rich businessmen at the expense of public services.

"The Prime Minister has said there are some hard choices to be made. This is surely an easy one. Spend rather more money on providing decent public services for the many and less on large tax breaks for the few," he said.

Mr Blair described the accusation as "nonsense". "As for the cost of the measure and the implication that we can pass all this money on to other people, that's just simply not the case. I think the vast majority of people support this because it will encourage long-term investment in business and industry," he said.

The revelation also brought criticism from some Labour members. At a meeting of the Parliamentary Labour Party attended by the Chancellor, the MP for Pendle, Gordon Prentice, asked what ordinary voters would think of Goldman Sachs' partners making more than pounds 50m each from their flotation. The richest 5 per cent of people still held almost four-tenths of the wealth, he said.

"What kind of perception would people have outside about this very big discrepancy in wealth?" he asked later.

David Heathcote-Amory, the Conservative Treasury spokes-man, said the Conservatives had considered this tax measure and rejected it.

"It's a fat-cat benefit charger and it's massively regressive," he said.