Europe facing a massive debt on pensions

Euro-sceptic Tory MPs last night said the Government could harden its policy against entry into single European currency before the general election, following a Commons committee report warning that Britain's European partners face a massive debt problem over state pensions.

The committee, chaired by the Labour MP Frank Field, was also seen as a let-out for Tony Blair, the Labour leader, who has been warned that he will not be able to sustain a policy of "wait and see" through a general election.

Senior Shadow Cabinet colleagues who have been pressing for Labour to rule out joining in the first wave were convinced that their argument had been strengthened by the report. It came only hours after Gordon Brown, the Shadow Chancellor, distanced himself from the warning by Lord Healey, the former Chancellor, that a single currency would lead to riots in the streets.

"The Prime Minister has been thrown a lifeline," said one jubilant Tory Euro-sceptic after the publication of the report by the Commons select committee on social security. It will intensify the pressure on Kenneth Clarke, the Chancellor, to drop his opposition to Britain ruling itself out of joining the first wave into a single currency.

Some Tory Euro-sceptics said it would mean Britain would become liable for the debts of Germany, France and other partners if it joined a single currency. That was discounted by Tory members of the select committee, but they conceded it would mean higher interest rates in Britain.

John Redwood, leading Tory Euro-sceptic and former Cabinet minister, said: "Joining a single currency and abolishing the pound means having a joint current account with our partners. Most Continental countries have made generous pension promises but have not saved any money to meet them. These figures should also be included in the reckoning "

The Tory Euro-sceptics believe it will enable the Government to opt out of a single currency in advance of the general election on the ground that Germany and France will now be forced to "fudge" the criteria for entry to overcome their debt burden on pensions.

The report warns that France and Germany will have to borrow more - breaking the criteria for entry to a single currency - or raise taxes or cut pensions to meet the debt burden.

Pro-Europeans played down the report. Quentin Davies, vice-chairman of the European Movement, said: "It is nonsense to argue that Britain would have to pay for the big pension commitments of other EU countries if we joined the single currency."

Lord Healey last night sought to defuse the row in which he had appeared to cast doubt on Mr Brown's economic competence by making complaint to the BBC. He said: "I was misled by the BBC, who had told me that Gordon Brown had delivered a put-down on me.

I am now clear that was not the case.''