The pensions scandal engulfing Gordon Brown last night fuelled speculation that he will face a serious challenge to succeed Tony Blair as Prime Minister. He also faces the prospect of an embarrassing Commons debate in which the Tories hope to have him made personally accountable.

John Hutton, the Work and Pensions Secretary, renewed his call for a contest for the Labour leadership as former ministers and senior MPs admitted that the furore had increased the chances of a serious challenger stepping forward. They said that it sowed serious doubts about Mr Brown’s judgment and economic competence.

After a two-year freedom of information battle with the Treasury, The Times obtained documents on Friday which showed that Mr Brown had pushed through tax changes in his first Budget in 1997 despite warnings from officials that it would cost occupational and private pension funds up to £75 billion and make millions of pensioners worse off.

Pensions campaigners claim it shows that he deliberately went about destroying what was at that time one of the best pension systems in the world.

Since the tax rise, which analysts say cost the industry up to £100 billion, private and company pensions have faced increasing financial difficulties. The Treasury insists that the move was in the long-term interests of Britain’s economy.

The Chancellor has been accused of attempting to bury the news by releasing it late on Friday afternoon, while Parliament was in recess and he was out of the country. However, the issue is set to dog him during the local election campaign over the coming weeks, with the Conservatives announcing a parliamentary debate on the row.

The Treasury faced further questions about spin after officials denied that the Chancellor tried to bury the story. They said their lawyers had told them that they had to release the papers on Friday before a tribunal hearing with the Information Commissioner today. However, there is no tribunal scheduled until next month.

The Chancellor, who was on a trip to Afghanistan on Friday, has not yet spoken publicly about the issue, leaving it to Ed Balls, his junior minister and close ally, to defend it.

Mr Balls said on Saturday: “The Times analysis is abject nonsense and a complete travesty of the information they have received.”

He insisted that the tax change was undertaken on the advice of civil servants. “It was made clear that pensions funds would be the gainers in the future, that the claims that this would leave a hole in the finances were unrealistic,” he told the BBC.

Mr Hutton, a leading Blairite Cabinet minister, said that it would be a “good thing” for the Labour party and for the country if there was a challenge. He added: “If someone comes forward and wants to challenge the Chancellor, there should be a proper and open and fair and properly conducted leadership debate. Whether someone does challenge Gordon or not for the leadership, that is a decision that others have to make.”

A senior Labour MP said yesterday: “A serious challenge is still unlikely, but this makes it slightly likelier. Gordon’s greatest strength was his economic competence, but this undermines it.”

One former minister said that Labour MPs would think twice about Mr Brown as they feel the public anger about pensions on the local election campaign trail. “A cabbie just told me, ‘You bastards raided my pension’. On the campaign trail, going out and talking to people, we’ll hear how annoyed they are. The undecided MPs might change their mind.”

Another MP said: “I’d like to think it would make a serious challenge more likely. When it comes to this pensions stuff, it’s less about a technical policy issue, but about his trustability, about whether he has what it takes to be Prime Minister. The idea that he is duplicitous will put another arrow in the quiver of Miliband or Reid or Hutton.”

Frank Field, the former Welfare Reform Minister, said: “It raises questions about his judgment. We don’t have a contest now, and the vibe is that there shouldn’t be one. But history shows it is the lack of contests that causes Labour trouble.”

John McDonnell, a leading leftwing Labour MP who has announced plans to challenge Mr Brown, said: “Up until now, there’s been almost a consensus that Brown is the natural successor to Blair. Now, questions about his competence are being raised. Increasingly, members of the Labour Party are looking for a proper contest.”

The Conservatives stepped up the pressure by announcing a debate after the Easter recess. George Osborne, the Shadow Chancellor, said: “It’s time that Gordon Brown faces the music for the damage he has done to British pensions.”

Cabinet funds

— Tony Blair and his Cabinet colleagues will enjoy retirement on final salary pension packages worth £25 million

— The Cabinet pension pot will fund annual payouts of more than £50,000 for senior ministers, with the Prime Minister set to receive £123,000 a year

— At present Gordon Brown can expect a pension of at least £53,000 a year, which would more than double if he becomes Prime Minister

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