Brown plans Budget bonus for pensioners

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Gordon Brown intends to shore up the Government's "grey vote" with a raft of measures for pensioners in this week's Budget, including action to lift the allowances for those on low incomes and some form of tax credit for the middle income elderly.

Cabinet ministers, Labour MPs and party officials have been lobbying hard for measures that will appease millions of elderly voters incensed by last year's 73p increase in the basic state pension. A minister said: "We're getting a hard time from pensioners who saw the 73p increase as an insult."

Backbenchers have also warned the Chancellor that they have received a huge post bag of complaints and the party's Millbank headquarters has also been deluged.

To counter the criticism, Mr Brown will raise the threshold of the minimum income pension guarantee by average earnings rather than average prices. Government insiders claim he is also likely to introduce some form of tax credit aimed at middle income pensioners.

There is a large group of pensioners in Britain who have put money into private and occupational pensions whose standard of living has fallen under Labour, while they have watched those who have made no provision for their retirement benefit from free TV licences, a £100 winter fuel allowance and the minimum income pension guarantee of £75. Mr Brown is thought to be attracted by the tax credit idea because, like the Working Families Tax Credit, it can be targeted at a specific group.

The number of complaints has alarmed party strategists who have noticed that national support for Labour among OAPs has slumped from 60 per cent to 41 per cent since the 1997 election. The party now wants to make sure it keep its "grey vote".

The moves will be seen as a sop to old left-wingers, led by Baroness Castle and Jack Jones, who have campaigned for pensions to be increased in line with earnings. This year's 73p pension rise was linked to a 1.1 per cent rise in prices compared to an average 5.9 per cent rise in earnings.

Baroness Castle said: "Sometimes Labour just has to do what it knows is right. It is nonsense to urge people to save money for their retirement only to turn round and tell them they are being penalised for saving. By means testing pensions and guaranteeing a minimum pension for the poor, the Government is sending out contradictory messages."

Frank Field, the former Social Security minister, said: "Even if Brown is reluctant to do something for pensioners for economic reasons he should see the political sense in doing more. Labour has already done a lot but the only message that pensioners understand is a clear cut rise in their basic pension with no strings attached."

He has calculated that pensioners with occupational pensions and small private pensions are actually £7 a week worse off under Labour.