Gordon Brown will announce extra money for pensioners in his Budget next week in an attempt to trump the help promised by the Tories and Liberal Democrats.
The Chancellor will join the battle for the "grey vote" at the election by unveiling extra money on top of his existing commitments - the £200 winter fuel allowance and this year's £50 payment towards council tax bills for the over-70s.
Mr Brown is expected to reject matching the Tory pledge to offer pensioner households a 50 per cent cut in their council tax payments up to a maximum of £500. He will tell MPs next Wednesday he has already provided £150 over two years towards the council tax bills of the over 70s and will point out the increases next month will be smaller than last year's at around 4 per cent.
Several options to help the elderly are still being considered by the Treasury and a final decision will not be made until the last minute. They could include speeding up this year's help with council tax, announcing a generous winter fuel payment or new measures targeted at the poorest pensioners.
The £1.3bn Tory pledge to cut council tax bills unsettled Labour MPs. The Tories have also promised to raise the basic state pension by £7 a week for a single person and £11 a week for a couple over four years.
Today, Charles Kennedy will unveil the Liberal Democrats' manifesto for pensioners, which will include an extra £25 a week on the state pension for the over-75s. The party says the elderly will also benefit from its plan to replace the council tax with a local income tax.
Labour will put the economy at the heart of its pre-election campaign following the Budget and Mr Brown will play a more central role. Supporters of the Chancellor have criticised Alan Milburn's handling of it, saying Labour should have responded faster to the Tory attacks on council tax and the health service. "The campaign has been a disaster. It has to be sharpened up or we will lose seats," one cabinet minister said.
Mr Brown was furious when Mr Blair handed his role of leading the campaign to Mr Milburn last September. The Chancellor told allies yesterday that the Prime Minister had conceded he was right to argue Labour's opinion poll lead on the economy showed the Budget should be made the centrepiece of the campaign.
Allies of Mr Milburn insisted Labour's effort was "on track" despite attempts from within the party to destabilise it. One said: "Alan is relaxed about Gordon. He always said Gordon would come into the campaign as the election got closer."
Blair aides dismissed claims that Mr Brown had had little involvement in the campaign so far, saying he had attended three recent strategy meetings and half a dozen since the autumn. They said that members of his team attended daily sessions.
David Blunkett, the former home secretary, called yesterday for greater honesty in Labour's campaign so that it could reconnect with the voters. "We must be honest enough to explain to people that politicians are not magicians," he said in a speech.
Mr Blunkett, who has again become embroiled in the row over his paternity case against his former lover, Kimberly Quinn, and her recent child, said in a BBC radio interview that he would like to return to the Cabinet, but he admitted: "I have to earn it."