Tories to restore pensions link to earnings

Pensioners' groups which have fought for 23 years to bring back the old-style state pension have suddenly found a new friend in the Tory party, which abolished it in the first place.

State pensions have been falling in relative value since Margaret Thatcher's government ended a rule introduced by Labour, under which pensions automatically rose every year in line with increases in average earnings.

This week, the Conservatives will promise to bring back that link, after Tony Blair and Gordon Brown have repeatedly refused to do so.

The Tory proposals will be part of a series of policy announcements to be made during this week's Conservative Party conference in Blackpool.

There will be announcements on health, schools, universities, police, asylum and drug rehabilitation, to put flesh on the brand of "compassionate Conservatism" being devised by the party leader Iain Duncan Smith. The conference slogan "Trusting people - a fair deal for everyone" is meant to emphasise Mr Duncan Smith's determination to devolve power from central government.

But the conference is being held against a background of dark mutterings about the quality of Mr Duncan Smith's leadership, renewing speculation that he may be ejected before the end of the year.

Despite Mr Duncan Smith's bold claim in yesterday's Daily Telegraph that "I'm the leader for the next election and I can guarantee that we're going to win", one newspaper survey suggested that more than a third of all backbench Tory MPs want to replace him.

Supporters of Michael Portillo, beaten by Mr Duncan Smith in the leadership election two years ago, are increasingly hopeful that he can be persuaded to run again if Mr Duncan Smith is ousted in the autumn.

One former minister, who worked closely with Mr Portillo, said: "He's persuadable. He loves the Commons, he loves the British constitution and the democratic process. He's not ready to bow out."

Last week, the Horsham Conservative association passed a vote of no confidence in Mr Duncan Smith. Horsham's MP, Francis Maude, who managed Michael Portillo's 2001 leadership campaign, said yesterday: "I don't comment on private meetings in the constituency."

Mr Duncan Smith's attempt to re-establish the Conservatives as a tax-cutting party hit an uncertain start yesterday. Soon after he had promised that "we plan to cut taxes by cutting bureaucracy and waste", his shadow Chancellor, Michael Howard, said no cuts had yet been agreed.

Mr Howard told the BBC's Today programme: "I want to cut taxes, I hope to cut taxes, I plan to cut taxes, but I can't yet make any firm promises."

The new Tory pensions policy is calculated to cause maximum embarrassment to Tony Blair and Gordon Brown, who have spent years fighting the campaign to "restore the link".

David Willetts, the shadow Work and Pensions Secretary, has devised a scheme that should be worth an extra £7 a week for a single pensioner, and £11 a week for a couple, without any tax increases.

Unusually, the new policy - to be announced on Wednesday - puts the Conservatives on the same side as left-wing union leaders in a long-running battle regularly fought out at Labour conferences.

But Mr Willetts's method of paying for the pension increases will be less palatable to the left. He is proposing to slash the amount of income support paid to single parents of children of secondary school age, by obliging them to look for work.

"I'm not doing this because I hate lone parents, but because of research evidence that it's in the interests of the child," he said yesterday.

He also plans to scrap the New Deal, one of Labour's flagship schemes to get the under-25s off benefit and into work. Mr Willetts cites research, disputed by the Government, which suggests that only 8,000 people have found permanent jobs through the scheme.