Blair bows to backbench demands with pension offer

Tony Blair is to cave in to the demands of hundreds of his backbenchers today with a promise to compensate 60,000 workers who lost their pension when their company went bust.

In a last-minute U-turn to protect his leadership, the issue, set for a crucial Commons vote next week, comes at a pivotal time for Mr Blair's premiership and follows an emergency meeting with Gordon Brown on Wednesday, after the Prime Minister recognised he was on a collision course with backbenchers.

He and the Chancellor accepted urgent action was needed to stave off what could have been the Government's first ever defeat in the Commons.

The Government has promised, through the Pensions Bill, to protect pensions rights in the future through a special insurance fund. But it has so far said that it can do nothing for those who have already lost out when their company went bust and that there was not enough in the pension fund to go round.

The Government was last night expected to table amendments to the Pensions Bill this morning,setting up a method for compensating the 60,000 people who are already in trouble by using money from the taxpayer. This has been estimated to cost around £76m a year.

The Government amendments to the Bill may be enough to ward off a major rebellion in the Commons next week. Kevin Brennan, Labour MP for Cardiff West, was planning to table his own amendment to the Pensions Bill today to demand help for those who have already had their pension promises shattered. The Pensions Bill will be debated early next week, and 298 MPs, 209 of which are Labour, have already indicated their support for action. Mr Brennan said £76m was "peanuts" to pay for the injustice of losing your pension savings.

The Prime Minister, facing a backlash over the UK's involvement in Iraq and having narrowly survived a vote on tuition fees, could not afford a rebellion on yet another issue, which has mainly affected people in industrial companies - such as Allied Steel & Wire and United Engineering Forgings - in Labour's heartland. The climbdown is also significant for Mr Brown, who has been seen as a major obstacle to compensation.

"It is not the Government's position to guarantee every transaction in the private market," he told a committee of MPs earlier this year. But he too, as the Prime Minister's position weakens, does not want to alienate core Labour supporters.

Some people, many of whom have worked for their company and paid in to a retirement scheme for decades, have lost up to 90 per cent of the pension they thought they were in line to get, as current law dictates that only those who have already retired are guaranteed their pension in full.

Frank Field, Labour MP and former minister for Welfare Reform, yesterday said that it was a major victory for thousands of ordinary, hard-working people. "The Government had no choice on this. The moral case against them was so strong," he said.

There are fears, however, that the Government may only agree to help those who were forced to join their company pension scheme as a condition of employment. Campaigners, such as the ISTC union, will not stop fighting on the issue unless all workers who have lost their pension funds are compensated.

The Prime Minister was prompted to act after being rankled, in particular by questions from Michael Howard on Wednesday, who stepped up the pressure on the Government on why it had not yet come up with a solution.

The first signs of the climbdown came last night, when Andrew Smith, secretary of state for Work and Pensions, told a delegation of pensions experts in Glasgow that compensating those who had lost out was the "right thing to do".

"While we accept no legal liability for their losses and we must avoid setting a precedent, if we could provide some help, it would be the right thing to do," Mr Smith said.

Until now, the minister has only expressed sympathy for the victims, but said it would be wrong to "raise false hopes" of compensation.

CASE STUDY: RETIREMENT HOPES RESTORED

Brian Silver

Brian Silver can hardly contain his excitement at the thought that finally, two long years after he was told his promise of a comfortable retirement was worthless, the Government may now restore his pension hopes.

For 32 years, Mr Silver, 51, worked in the steelworks of Allied Steel & Wire in Cardiff. It went in to receivership in 2002 and if the thought of losing his job was devastating enough, he was told that after 29 years of contributing to his pension scheme he had also lost 80 per cent of what he was originally entitled to. Instead of £13,000 a year to live off in retirement, he was told he could only expect £1,800. He is still unemployed.

"This has situation has been tragic for some people - particularly those who were nearing retirement when they lost their job and their pension," Mr Silver said yesterday.

"At least I still have some years left to work, although I am still out of a job at the moment.

"We have to look at the detail of what the Government says and we won't go away if it is a half-baked measure, but at least they seem to have given way."