MPs tell Blair they want more spending

Tony Blair came under fire from his party over the Government's record on pensioners and the economy yesterday when he tried to steady Labour nerves ahead of next month's local authority elections.

The Prime Minister promised Labour MPs at their weekly meeting that more money would be pumped into public services when a new three-year spending blueprint was published in July. But he rejected demands for a pre-election spending spree.

Four Labour MPs challenged Mr Blair over this month's tiny 75p rise in the basic state pension, which has infuriated groups campaigning for the elderly. Those demanding more government help were Nick Palmer, Stephen McCabe and Harold Best, while Dennis Skinner urged the Government to "spend some of the money in the kitty". He warned that the hair-shirt approach Roy Jenkins adopted as Chancellor cost Labour the 1970 election.

Mr Blair insisted that his government had directed £6.5bn into the pockets of the poorest pensioners. He said this was a bigger boost than if the basic pension had been uprated in line with earnings rather than prices - a key demand of the pensioners' lobby.

He made clear that Labour would fight the general election on its economic record as well as on health and education, saying the economy had not been stronger for decades.

With Labour bracing itself for heavy losses in the 4 May council elections, Mr Blair urged his MPs to use the party's campaign to put the spotlight on Tory policies.

Mr Blair, however, came under attack over the mounting job losses in manufacturing from Bill Morris, leader of the Transport and General Workers' Union. Writing in this week's issue of the left-wing weekly Tribune, Mr Morris warned that manufacturing was "crumbling before our very eyes" while the Government "panders to big business".

Peter Mandelson, the Northern Ireland Secretary, yesterday recognised the "genuine difficulties" facing industry because of the strong pound. "Those areas ... most exposed to the exchange rate are feeling the strain, which can cause even the most ruthlessly efficient businesses problems," he told a seminar on business and Europe in London.

Mr Mandelson hinted that Britain's drive for economic reform in Europe would be greatly assisted by membership of the single currency. "Only at the heart of Europe can we fulfil our potential," he said. "We can commit ourselves wholeheartedly. Take our place at its heart and shape it to our ends. Or we can hang back and it will tow us in its wake."