Leading Article: Windfall tax that won't hit fat cats

Gordon Brown seems determined to go down in history as an iron chancellor, who took the financial regulatory system of the country by the neck and shook it hard. He is also keen to be seen as popular and fair: his much-vaunted windfall tax is intended to be both. There is, though, a problem with his proposed pounds 5bn levy on the privatised utilities: hard as it is for a newspaper which has opposed privatisation of public assets to say so, the charge may be popular but it is not fair.

It is billed as a tax on the "excess profits of the privatised utilities". Yet, what is a utility? BAA, which runs Britain's airports, is, apparently; the more profitable British Airways, which ferries the bulk of the country's air passengers around, is not. Likewise, Railtrack is regarded as a utility, while the train operators are not. British Telecom, which is challenging the tax in the courts, faces stiff competition in an increasingly divided market and must also suffer. When are profits "excessive"? The more they make, the more the companies have paid in tax. One recent study showed the 33 companies previously in state ownership had raised an average of pounds 8.8bn tax every year for the last seven years.

For a tax to be judged a success, said Adam Smith, it should be equitable. On that basis, the windfall tax will be a failure, including some companies, excluding others, on criteria that are difficult to sustain; and, worse, hitting the wrong target. Investors who made a killing from the early fruits of privatisation have long since sold on their shares. Several of the electricity and water companies are now owned by foreign buyers, who paid a fair price and cannot, in any sense, be said to have enjoyed a "windfall" - yet Mr Brown will make them cough up.

The windfall tax has long ceased to be about reason and logic. From its inception, it was always perceived in Labour circles as a tax on the fat- cat bosses, many of whom were natural Tory supporters. The charge was a way for the mass of the population who saw their assets sold, to strike back at those who subsequently reaped huge rewards. It may have been an honourable objective but its execution is misguided and naive. The utility bosses will continue to award themselves large salaries - none of them will take a pay cut or see their haul of share options diminish because of the tax. This will mean either cost reductions which lead inevitably, to job cuts and/or higher tariffs.As ever, the fat cats will take the cream, leaving employees and consumers, the very people Mr Brown intends to benefit, to foot the bill.

Labour has staked much on this tax and it is unlikely that it will be persuaded to think again. And, after all, it was a key part of the election- winning manifesto. But for a party keen to be portrayed as the "party for business" it is a strange way to behave. Mr Brown will get his way but he should not convince himself that he is behaving reasonably or that his tax is fair.