Brown fears plans would put 5p on income tax

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The Government is expected to reject parts of the Turner report on pensions after the Treasury's initial calculations showed it could put 5p on the basic rate of income tax.

Gordon Brown is worried that the £16.4bn-a-year price tag by 2020 which his officials have put on the proposals may not be affordable, including a £7.6bn annual bill for raising the state pension in line with earnings rather than prices.

Although aides say the Chancellor wants a public debate on pensions, if he becomes Prime Minister he is unlikely to adopt all recommendations in the 460-page report, after a three-year inquiry chaired by Lord Turner of Ecchinswell.

Tony Blair, who appears more sympathetic, backed the Turner commission's call for a more generous basic state pension but signalled that people would have to work longer before they qualify. The commission's proposals are based on a state pension age of 66 by 2030, 67 by 2040 and 68 by 2050.

The Prime Minister endorsed the trade-off at the heart of the report, which would mean a decisive switch from the means-tested support for older people through pension credit, which Labour introduced. Without such a change, more than 70 per cent of pensioners would wind up with means-tested help.

He told MPs: "I've got no doubt we will end up with a long-term framework for pensions that has as its basis a decent basic state pension and a much simplified way for people to save." Mr Blair is prepared to consider Lord Turner's controversial proposal to force employers to contribute 3 per cent of a worker's salary into a new national pensions saving scheme (NPSS). But Mr Brown is worried it would hurt small firms.

Other ministers put a question mark over Lord Turner's plan to help women and carers by making the state pension universal for everyone over 75 regardless of their contributions. They doubted the practicality of the proposed "residency" qualification, saying it would sometimes be difficult to establish that people had lived in the UK.

Mr Brown believes the cost of implementing the report would be higher than Lord Turner predicts. The Treasury has included in its future spending projections the savings from raising the state pension age for women from 60 to 65, and believes Lord Turner has "double counted" the money.

The Treasury's £16.4bn figure excludes the £3bn cost of tax relief on employee contributions to the NPSS, into which workers without an occupational or private pension would automatically pay 4 per cent of their salary unless they opted out. That could take the total cost to £19.4bn.

Lord Turner, privately angry at a Treasury strike against his report last week, insisted his package was "feasible and sustainable". He said the rise in public spending he envisaged over 45 years was the same as the Government is spending over five years to improve the health budget. He described the chances of his report being implemented as high, adding: "I am, by nature, an optimist."

The Government, which promised a national debate on pensions, will produce a White Paper responding to the report by spring. But there are differences over how quickly it should act.

Mr Blair wants to bring in legislation before he stands down before the next general election. A briefing note to Labour MPs reminded them of the party's manifesto commitment to resolve the problem by 2010.

But Mr Brown wants to delay legislation on the main measures to tackle it until after the next election.

John Hutton, the Secretary of State for Work and Pensions, told the Commons that the Turner report would be "an important milestone towards a lasting pensions settlement" but refused to be drawn on the Government's detailed response. But Mr Brown, sitting next to Mr Hutton, nodded approvingly when he highlighted the cost of linking the state pension to earnings and making it universal from 75. Mr Hutton said: "We cannot take decisions without first determining the affordability of proposals, and there is no point in us or anyone else making commitments on anything other than a sensible and sustainable financial basis."

The Tories and Liberal Democrats welcomed the report, accused Mr Brown of trying to sabotage it and said he should not have a veto. They portrayed him as the obstacle to a national consensus based on a higher state pension.

Sir Malcolm Rifkind, the Tory pensions spokesman, blamed Mr Brown for causing the crisis by "attacking the savings culture with a £5bn raid on pension funds".