Tony Blair is facing the biggest backbench revolt since he became Prime Minister over the Government's refusal to help up to 60,000 workers left with a fraction of their pensions after their companies failed.
Mr Blair has been warned that the Government could be defeated in Parliament. Some of the workers had paid in to their company schemes for 40 years only to be left with 10 per cent of what they had expected in retirement. Some people will get nothing from their pension fund.
Many of those affected worked at Allied Steel & Wire, Dexion and United Engineering Forgings, which all became insolvent recently. The current law guarantees full pensions only for those who have already retired.
Political support for compensating these workers is mounting. Kevin Brennan, Labour MP for Cardiff West, has been leading a "quiet rebellion" in the Commons that now looks certain to shake the Government. He has tabled a Commons motion calling for workers who have lost their pension to be compensated. A total of 291 MPs have signed the motion, 203 of them Labour.
The Government has recognised the need to change the law and a Bill is going through Parliament to ensure the situation is not repeated. The measure will create a pension protection fund to bail out pension funds that go bust. But it will not be retrospective and will not help anyone already suffering.
The Bill is to reach its report stage this month and the Government has until then to decide whether to provide compensation. If it refuses, it could face a rebellion bigger than on the Iraq war, on which 121 Labour MPs voted against the Government; university tuition fees (72) and foundation hospitals (62). Mr Brennan said: "If the Government does not commit to some sort of help, I will table an amendment to the Bill at its report stage and there will be a lot of support for it."
Government whips are worried that, even if the Pensions Bill survives the Labour revolt in the Commons, the House of Lords is almost certain to vote for compensation. They fear MPs would then refuse a request by the Government to overturn the Lords' decision. Frank Field, the former social security minister, said: "Almost every MP has constituents affected by this. We are not seeking a confrontation with the Government; we are just trying to help it to see sense. If it does not bring forward its own measures, it will be defeated in Parliament and it will not get any credit for it."
A spokesman for the trade union Amicus said yesterday: "The silent army is on the march. You don't get that many MPs signing an early day motion without a strong sense of feeling. The Government will be defeated if it refuses to help. It may have won on tuition fees, but a bigger battle is yet to come."
The Liberal Democrats have pledged their support. The Tories will not commit to the use of public funds. They will support compensation only if it is paid from the £15bn in dormant bank accounts.
Labour MPs do not mind where the money comes from. "All we need is the agreement to do something. The Government can devise ways of raising the funds from wherever it wants after that," Mr Brennan said. "Imagine being on the cusp of retirement and finding out your pension is only going to pay out 10 per cent of what you had banked on. It impacts families and marriages. These people feel humiliated that they were duped into saving in a pension fund they thought was guaranteed."
A spokesman for the Department for Work and Pensions said "The ministers are very aware of the strength of feeling on this issue and they have not shut the door on help. They have met with workers, unions and with MPs and we are now investigating what the extent of the problem is."
Experts believe that it would require funding of only £100m a year to make good the pension requirements.
The number of people in this position is rising. A further 4,700 at the engineering company Mayflower were told last week that the company had called in the receivers. Its pension fund has a £20m "black hole", and it is likely that they too will lose most of their pensions.
Reward for 32 years of hard work: £1,800 a year
By Rachel Stevenson
For 32 years, Brian Silver slogged in the grimy steelworks of Allied Steel & Wire (ASW) in Cardiff. When he heard the company was going under in the summer of 2002 and he would lose his job along with 849 other colleagues, he was devastated. It is not easy for 50-year-olds to get new work in the manufacturing sector.
But worse was to come. Not only had he lost his job, but after 29 years of faithfully paying in to ASW's pension fund, he had also lost more than 80 per cent of the pension he was in line to get. He was looking forward to £13,000 a year to live off in his old age. Now he can expect only £1,800, and that is only an estimate. It could be even worse.
"We knew the company was in trouble and negotiations were going on. I hoped I would get £30,000 as redundancy pay, although that didn't come." Mr Silver, who is still unemployed and lives with his wife and family in Cardiff, said. "Even after the redundancy disappointment, I thought my pension was safe.
"Everyone said when I was 18 and started working that I should join the company pension scheme and it would be the best thing I'd ever have. This is my money I've lost, my money that I'd saved to live on and enjoy life a little when I finally stopped work. And one of the saddest things is that my wife, who would have been entitled to a pension if I died, will get nothing.
"I am glad the law is changing to make sure this never happens again, but I don't know how me and my family are going to manage."