Brown faces pressure on pensions

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Tony Blair's former economics adviser Derek Scott became the latest to add his voice - telling the Daily Mail that the Prime Minister shared his reservations.

He said the controversy was "potentially quite damaging" for the would-be Labour leader's public image and hit out at "very foolish" Treasury attempts to claim business chiefs' support.

The outcry was sparked at the weekend when documents were released proving Mr Brown was warned before his July 1997 Budget that the move could wipe billions from pension fund assets.

Tories have challenged the Chancellor to account to MPs for the abolition of the dividend tax credit and are calling for an independent inquiry into its impact on pension funds.

They have used the issue to question his suitability to take over at 10 Downing Street when Mr Blair steps down this year - amid mounting pressure for a heavyweight challenger to take him on.

The CBI - which had attacked the tax move as a "misjudgment" - has denied claims by a close Brown ally that it had pressed for the change to be made at the time. Its head at that time, Lord Turner, said the suggestions from Treasury minister Ed Balls were "completely untrue".

Mr Balls insisted the decision was taken "on considered advice, and on the judgment we made on what was necessary to promote long-term business investment in the UK". It had risen by 50% over the subsequent 10 years, he pointed out.

But Mr Scott told the Mail: "I didn't think it was a very sensible decision to take money out of pension funds. The idea that you help by taking out £5bn a year struck me as bizarre.

"I think the Prime Minister saw the merits of my argument but he didn't feel sufficiently strong at that time to overrule his Chancellor. With hindsight, as everyone has seen, it wasn't a good thing."