Windfall tax: Labour plans to impose levy in first Budget

Shadow chancellor pledges to plough pounds 3bn revenue into programme to help unemployed

Labour's new windfall tax, which is expected "comfortably" to raise at least pounds 3bn, will form part of Gordon Brown's first Budget, to be delivered within six weeks of his move into the Treasury.

But as Mr Brown showed in an interview on BBC Radio 4's Today programme yesterday, Labour is reluctant to go into any great detail before it discusses the practicalities - in government - with the Inland Revenue and privatised industry regulators.

Conservative demands for information on the amounts of tax to be raised from individual companies are regarded as a potential trap for the unwary, creating hostages to fortune.

While Labour's legal advice is that the windfall tax would withstand legal challenge in British or European courts, that does not mean that Labour leaders can abandon all care.

Injudicious statements could yet open the tax to legal action, as could any inequality of application of the tax. All utilities would have to be put on the same footing; if one was unjustifiably exempted, others could then open legal proceedings.

However, Mr Brown told Today: "I think what the utilities will now want to do, instead of defending a privileged position, is to work with us so that we can implement this in a sensible way."

He said that every privatised utility would be considered as a candidate for the tax, to be judged on the basis of "the extent of their monopoly position, the weakness, or not, of the regulatory regime, and the value of the assets on the point of sale."

But Mr Brown said last night there was no question, whatever the utilities themselves threatened, "of any regulator allowing any rise in prices because of the windfall levy.

"And any attempt to lower investment levels below those which are promised would, of course, be in breach of undertakings made."

The main purpose of the tax is to finance Labour's pledge to get 250,000 young unemployed off benefit and into work.

Explaining how the one-off pounds 3bn levy would be spent over a period of years, Mr Brown said in an Anthony Crosland Memorial Lecture last night: "A tax rebate of pounds 60 a week will be offered to a private company to take young people on.

"They will be offered the option of employment through a community and voluntary organ-isation programme, or through our new Environmental Taskforce as party of our Citizen's Service.

"And each of these three options for work involves day-release education or training leading to a qualification.

"And to create a fourth option, full-time further education and training, we will end the perversity of unemployed young men and women, without basic qualifications, being banned from benefit if they study for more than 16 hours."

Mr Brown repeated that"there will be no fifth option of remaining permanently on full benefit," he warned.

As for the older long-term unemployed, Mr Brown said that employers who took on people who had been unemployed for two years or more would be offered a pounds 75-a-week tax rebate.

The basic Labour employment programme is expected to cost pounds 900m in the first year for the under-25s, and pounds 100m for the long-term unemployed, with another pounds 2bn spread over the remaining four years of a five-year Parliament.

If the windfall levy raised more than pounds 3bn, that would be ploughed into the programme to help the unemployed - "part of an abandoned and forgotten generation."

Putting the tax into its political context, Mr Brown said last night: "There have been left-of-centre politicians who have espoused socialism, but fail to meet the test of credibility," he said. "There have been those who have presented themselves as credible by abandoning socialism.

"The real challenge of left-of-centre politics is to be socialist and at the same time credible." That was a challenge, he said, that Labour fully understood - "and fully intend to meet".

Mr Brown also said the "second building block" of his modernisation programme would bring a lower starting rate of income tax - 10p in the pound - and an adjustment of benefit clawback, "to make work pay".

It was said last night that he would like to introduce the 10p rate in his first year of office - but there is no question of windfall tax revenue being diverted to finance that proposal.