The row between the department of social security and the Treasury over how to deal with the “Serps misselling scandal” may cause the prime minister to intervene, according to officials.
The problem involves the payouts for widows and widowers of those with a state-earnings-related pension which is to be halved when their partner dies. The conservative Government legislated in 1986 to halve entitlements from this April, but people were not informed of the change till 1996.
The department of social security wants to put off the change for up to a decade, while the Treasury is pressing for a scheme under which compensation would only go to those who claim they were actively misled by the government.
Unnamed officials predict Tony Blair will have to intervene to sort out the dispute.