Unions fight Blair over pensions

Tony Blair is trying to head off a damaging defeat at next week's Labour Party conference by the pensioners' campaign led by Baroness Castle for a big increase in state pensions.

Mr Blair met John Edmonds, leader of the GMB general union, and Roger Lyons, general secretary of the MSF manufacturing union, to urge them to reject the campaign for the earnings link to be restored to pensions, led by the veteran former Cabinet minister and Lord (Jack) Jones.

The party leadership is also concerned that it is facing defeat at the hands of the unions on their demands for the immediate restoration of employment rights if Labour comes to power.

The Labour leadership fears it could be overturned on pensions by Lady Castle, who was responsible for establishing the link between pensions and earnings in the Wilson government. A Shadow Cabinet source said: "Fighting Barbara Castle and Jack Jones is like taking on Mother Teresa and Nelson Mandela. It's going to be very close."

The leadership is also facing defeat in a second vote on Wednesday over demands to restore protection from day one of employment, as promised by John Smith, the late Labour leader. The unions, who hold 50 per cent of the votes at the conference, are in no mood to do the leadership favours after the rows at the TUC conference earlier this month.

A vigorous fightback against Lady Castle is being mounted by Harriet Harman, Labour's spokesperson on Social Security. She told The Independent: "There is no pot of gold to pay for pensions. If we were to promise pounds 3.5bn for pensioners, it would be a spending commitment which we would have to break, or it would mean putting taxes up."

She is pressing the unions and the constituency parties, who hold the remainder of the votes, to accept the plan for "stakeholder pensions" drawn up by her predecessor, Chris Smith, to provide a valuable top up for the state pension.

Ms Harman insists that the Labour pensions plan would target money at the poorest pensioners, while the flat rate uprating plan promoted by Lady Castle would be expensive and less effective.

Labour promised the restoration of the link between earnings and pensions at the 1992 election, funded by abolishing the ceiling on national insurance contributions. That led to the Tory "tax bombshell", which cost Labour the election. The Shadow Chancellor, Gordon Brown, is determined not to repeat the mistake.

Lady Castle is a formidable advocate. "She looks frail but when she gets to the microphone, she goes off like a bomb," said another Shadow Cabinet source. "The trade unions don't want to have a big row at the conference. It is Barbara's `last stand' but we just hope that the unions and the constituencies are getting the message that her scheme is not the best."

Union sources said the union leaders "listened and said they would think about it" but gave Mr Blair no promises.