Brown will woo 'grey vote' with £2 increase in pensions

The Government will attempt to win back crucial "grey votes" at the next election by promising a £2-a-week increase in the basic pension.

Gordon Brown, the Chancellor, and Alistair Darling, the Secretary of State for Social Security, are to give a cast-iron pledge to uprate the pension to quell rising anger among pensioners. The move follows months of intense pressure from Labour MPs, who have been inundated with complaints about the current "miserly" 75p pension rise that came into force this month.

The decision to finally tackle the problem was made after Tony Blair came under fire over the issue from backbenchers last week .

Under proposals to be revealed today, ministers will make clear that pensions will go up next year by at least £104 a year for a single person and £156 for a married couple.

The rise is expected to be in line with inflation, but Labour sources have made clear that the Chancellor will guarantee a £2-a-week increase even if inflation is lower than expected.

The shortfall will be met by Treasury after figures last week showed that Mr Brown has more than he had predicted: government departments underspent their budgets last year by £3.9bn, while tax receipts were £1.3bn higher than in the Budget forecast.

Labour is keen to regain the initiative in the battle for pensioners' votes after recent stories, heavily denied, that the party believes older people are racist or workshy.

Ministers will make clear tomorrow that the Government wants to uprate the pension to add to benefits already given to pensioners in free TV licences and winter fuel payments. The Prime Minister is keen to get across the message that Labour has directed some £6.5bn into the pockets of the poorest pensioners.

Mr Darling is to launch a major publicity offensive stressing that the winter fuel payment, which is given to all pensioners regardless of income, has gone up from £100 to £150 a year.

The Government is also spending nearly £10 million on a media campaign to persuade the elderly to claim benefits to which they are entitled.

Ministers are determined that most money should be directed at the older, less well-off pensioners via the new minimum income guarantee (Mig). However, they are convinced that the sheer bad publicity over the 75p rise, which was determined by the unusually low inflation figures last September, means they have to act.

"Our MPs have been saying this is killing us out there. These are the Labour aristocracy, skilled manual workers who have worked hard all their lives and have a small pension at the end of it," a senior Labour source said yesterday.

"They aren't entitled to the minimum income guarantee and are complaining loudly about the 75p increase. We've got to reassure them we're on their side."

Backbenchers have expressed their discontent at repeated meetings with Mr Brown and other cabinet ministers, with many calling for the link between pensions and earnings, rather than inflation, to be restored.

The Chancellor did consider changing the basic pension link last autumn to connect it to a higher version of the Retail Price Index, but was worried that this would cost too much.

Mr Brown has so far ruled out going a step further and restoring the link between pensions and earnings, but many Labour MPs point out that such a link applies to the Mig.

The Government's pensions promise comes amid strong pressure on Mr Brown to use some of the proceeds from yesterday's £22.5bn mobile phone auction on public spending.

The Treasury is committed to using the cash to repay the national debt, but many Labour MPs are pointing out that the £1.3bn saved in annual debt repayments over the 21 year span of the licences could be used on schools and hospitals.

Peter Kilfoyle, the former minister, called for the windfall to be spent on Labour's heartlands and on a New Deal to resuscitate British manufacturing.

Writing in the New Statesman, he called for some of the money saved to go to areas being crippled by job losses, such as in the motor industry. "Is it not time for a New Deal for manufacturing, using some of this to finance a manufacturing renaissance within the rules of the single European market?"

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