Brown's £725m 'betrayal' over lost pensions

Ministers had promised £725million to help more than 125,000 workers whose company pension schemes collapsed.

But the Prime Minister has risked a major Cabinet split by vetoing the plan.

Last night critics accused him of a "betrayal" which would condemn pensioners to a "dreadful Christmas".

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Some contrasted the Government's lack of help with its speedy action to rescue Northern Rock, at a cost to taxpayers of more than £25billion.

Work and Pensions Secretary Peter Hain was said to be "very frustrated" by the opposition of Mr Brown and Chancellor Alistair Darling.

He is understood to have already put aside £725million of his department's budget to beef up the Financial Assistance Scheme, which gives compensation to people who have lost out after paying into company pension schemes which collapsed before 2004.

Andrew Young, the Government's chief actuary, said the money would give the workers 90 per cent of the value of their lost pensions.

It would bring the Financial Assistance Scheme - to which the Government has already committed £1.5billion - into line with the Pension Protection Fund, which compensates victims of later pension fund collapses.

Earlier this year, pensions minister Mike O'Brien promised that the Government would come up with a rescue package.

He is now said to be "mortified" that he will have to break his word as the result of Mr Brown's refusal.

Campaigner Dr Ros Altmann, of the Pensions Action Group, said last night: "The money is there. It just needs to be paid. Northern Rock was sorted out in days - these people have been waiting years.

"Good people are being left to have another dreadful Christmas.

"I do not know how any politician can enjoy Christmas festivities if these people are being left like this."

Tory spokesman Chris Grayling said: "These people have been left facing real hardship in retirement as a result of Gordon Brown's pensions failings over the past ten years.

"If he is now deliberately blocking a package that could help rescue their retirement it is an absolute betrayal."

Last month 30 campaigners who lost their pensions when their companies collapsed staged an all-night vigil outside Downing Street, while another group stripped off at the Labour conference in Bournemouth.

In February the High Court attacked the Government for producing "inaccurate and misleading" leaflets which had reassured workers that their pensions would be safe.

Dr Altmann said: "After the instant rescue of Northern Rock savers, at a potential cost of billions of pounds to the taxpayer, the continued delay in settling the pension wind-ups scandal is totally inexcusable.

"Responsible Government should be about admitting mistakes, putting them right and moving on.

"Sadly, it seems Gordon Brown and Alistair Darling are incapable of doing so and this lack of integrity and compassion has led to a bitter row within Cabinet.

"It is important that governments should be honest about what they do.

"Whatever else they do, they should not put people in a position in which they do not have adequate pension cover."

Liberal Democrat spokesman Danny Alexander said: "The Government should be ashamed of the way it has treated these 125,000 pensions victims.

"Still it continues to drag its feet, years after justice should have been done.

"These people should be paid benefits at the same level as the Pension Protection Fund.

"There is a powerful moral argument for doing so and a small cost.

"Mr Brown's incompetent government now seem incapable of doing the right thing, even when it is blatantly obvious what is needed.

"Let us hope that public pressure will cause a rethink."

A spokesman for the Department of Work and Pensions said: "Andrew Young was asked to examine ways of using the residual assets in FAS pension schemes more effectively for the benefit of those who have lost their pensions.

"We will continue to consider his findings carefully and make an announcement in due course."