Blair ally calls for Brown to raise tax

Tensions were rising in Downing Street today over a campaign by allies of Tony Blair to twist Gordon Brown's arm over pensions.

Ministers were bracing themselves for a backlash from the Treasury after a week-long campaign of sniping at the Chancellor's flagship policies for the elderly.

The latest salvo was fired by former minister John Denham, a Labour MP close to Blairites, who criticised Mr Brown for refusing to sanction a tax increase to lift the basic state pension. He said Labour lacked a "convincing" policy for pensioners for the general election. His comments follow a series of remarks by ministers close to No 10 casting doubt on the long-term future of Mr Brown's cherished Pension Credit system, which directs cash to the elderly most at risk from poverty.

The tax credit has been criticised by MPs for being overcomplicated and difficult to explain on the doorstep. Some 1.2 million poor pensioners fail to claim it because it is so little known.

Other critics say the meanstested tax credit discourages savings because it helps the feckless more than the thrifty. It is available to five million pensioners and guarantees a minimum income of ?105 a week.

Earlier this week, Pensions Minister Malcolm Moss described it as "only a policy for the short and medium term".

New Work and Pensions Secretary Alan Johnson said in another debate the credit "should be there until we have solved the problem of abject pensioner poverty", implying it could be scrapped or overhauled. He added he was openminded about alternatives, including a higher basic pension. Sources close to Mr Johnson denied he was criticising Pension Credit and said he agreed with the Chancellor that it was still vital to lift the incomes of an estimated one million pensioners in poverty.

However, the implication of the ministers' remarks are that Mr Brown should agree to a sweeping overhaul.

Earlier this week, the Chancellor abruptly pre-empted the Turner Report on the future of the pensions industry by ruling out any move to bale out pensions through tax rises, which he believes would cost the taxpayer billions.