Blair to raise pensions as sop for retirement at 67

Tony Blair has signalled that the Government may back a more generous basic state pension as a sweetener for raising the age at which it becomes payable from 65 to 67.

The Prime Minister risked a further rift with the Chancellor, Gordon Brown, by saying the "basic construct" of the Pensions Commission chaired by Lord Turner of Ecchinswell, would be welcomed by the Government. He described the draft he had read as "basically correct".

In his report on Wednesday, Lord Turner will recommend that the £82-a-week state pension be increased in line with earnings instead of prices, which rise more slowly, but that people should not qualify for it until the age of 67 after 2020. Mr Brown is worried that the eventual annual £12bn cost would raise taxes.

A Blair ally said: "No government could just tell people they have to work longer. You would have to give something in return and have a balanced package."

Interviewed on Sky News, Mr Blair denied that Lord Turner's three-year inquiry had been a waste of time because the Treasury had launched a pre-emptive strike against his proposals.

The Prime Minister played down his differences with Mr Brown, insisting that a solution to the problems over pensions had to be affordable. He said: "What he [Mr Brown] is saying is you have got to take decisions according to the financial resources that you have got, and that is an absolutely correct statement. It is the statement you would expect any Treasury to make. But the pensions proposals from Adair Turner, I have no doubt they will be given a broad welcome by the Government."

There was further confusion over the Government's policy when the Treasury denied a report that it wanted to tear up a deal allowing public sector workers to continue to retire at 60. The report caused consternation in Whitehall and angered trade unions.

A Treasury spokesman said: "The entire Cabinet signed up to the public sector pensions deal agreed last month, and nobody is talking about ripping it up or blocking it. We must wait to read Lord Turner's report this week. If he does recommend any changes to the retirement age that will of course form part of the national debate on the long-term future of pension arrangements."

Brown aides denied the Chancellor was trying to stifle debate on a rise in the basic state pension, on which there is a growing consensus outside the Labour Party.

Brendan Barber, the TUC general secretary, said it would be "ludicrous" for the Government to use the Turner report as a pretext for unpicking the deal. "Industrial relations depend crucially on trusts. Agreements must be honoured.," he said.

David Cameron, the front-runner to become the next Conservative leader, suggested that he would back a rise in the qualifying age for the state pension.

"You need a stronger basic state pension at the heart of the system, therefore reducing means testing. Then the issue is how you pay for it and we may need to look at a rise in the state pension age."

Lord Turner is expected to recommend a Britsaver scheme under which all workers would be automatically enrolled into a pension with annual contributions worth 8 per cent of their salary, 4 per cent from the employee, 3 per cent the employer and 1 per cent the state. Families employing a nanny would contribute a 3 per cent "nanny tax".